High fuel prices cause airlines to make changes
Posted June 24, 2008
Raleigh, N.C. — Airline ticket prices could rise about 50 percent over the next few years, one aviation expert says, and that could change the face of the friendly skies.
"That means we may go back to the 1960s and 1970s, where the typical traveler was a higher-income traveler, and we move away from the mass movement," said John D. Kasarda, director of the Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill's Kenan-Flagler Business School.
As with most aspects of transportation, gasoline prices are forcing transformation in the airline industry.
Kasarda says that a few years ago, fuel was 20 percent of an airline's cost. It's now up to 70 percent for some carriers.
To help cover the extra costs, most U.S. carriers are now charging fees for services they once offered at no extra cost. Most recently, for example, American Airlines began charging fees to check baggage. Other carriers, such as U.S. Airways and United Airlines are expected to follow suit.
Kasarda also believes that airlines will eventually charge fees for other luxuries and perks, like window seats, aisle seats, seats in exit rows and snacks.
"They're going to charge for everything they can," he said.
Coupled with rising fuel prices, Kasarda says, U.S. carriers have not invested in newer equipment, unlike their European counterparts.
"As a result, their fuel efficiencies are very, very low and their maintenance costs are much, much higher," he said.
Kasarda said that In the short-term, he expects more airline mergers to reduce the number of available seats.
Ultimately, he expects there to be no more than four legacy carriers available. Some will merge, he said, and others will go under.
"So this is an effort to get control, not only of costs, but to shrink the capacity so supply does not exceed demand. Therefore, prices can rise," the professor said.