The era of cheap air fares is over as oil spikes to record levels and several airlines won’t survive this unprecedented crisis

Oil is on the verge of passing the $150 line for the first time and the growth of passenger demand which was taken for granted suffers a setback in the light of an economic downturn in the U.S. and in several European countries.  Airlines’ fuel bills are soaring, increasing their operating costs, but tough competition and cash-strapped consumers prevent airlines from spiking prices. Most airlines suffer enormous losses or profit nosedives. The leading European no-frills airline Ryanair expects neither losses nor profits for 2008 after a €430 million profit in 2007. Many airlines are struggling to pass higher fuel costs on to passengers fearing a demand slowdown and a lower passenger load factor. Ryanair guarantees the lowest fares and no fuel surcharges which shows the importance of load factors to low-cost airlines. While keeping the basic fares low, Ryanair is cutting expenditures by flying planes slower to save fuel and tries to earn money on extra services. Checking one bag is €20.00, snacks are not for free, early-boarding is charged with €10.00, credit card booking amounts to €8.00. Ryanair also plans to allow the use of cell phones and smart phones on flights after air regulators approved the use of such devices on board. Ryanair will be the first European carrier offering such a service with competitors fearing that loud conversations could disturb other passengers. The passengers using their cell phones will be charged at international roaming tariffs via their monthly bill and Ryanair will receive a commission on the revenue. These extra sources of revenue allow Ryanair to subsidize its passenger operations.

In addition to the numerous risks the aviation industry is already facing, the European Union will push up the operating costs of airlines further by including airlines operating in Europe into emissions trading

However, Ryanair will expand despite the gloomy outlook for the aviation industry which will generate an enormous loss of more than $6 billion this year according to the international air transport association. Record prices for jet fuel should force airlines to switch to modern, fuel-efficient planes, but first, these planes can only be delivered delayed (A380, B787) and second, many airlines can’t afford these planes anymore due to financial difficulties and even consider cancelling or delaying their orders which is also felt by Airbus and Boeing. At the Farnborough world air show, aircraft manufacturers don’t expect to sell as many planes as in the past record years, but big orders are anticipated from carriers from the Middle East such as Etihad Airways, Emirates and Qatar Airways.

http://www.iht.com/articles/2008/07/11/business/air.php?page=2

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