Gas prices really hit home and affect everyone. No one really knows the true effect of gas prices until it is too late. I worry about the gas prices effect on the economy as a whole. Today’s article from CNN shows the impact it could have on airlines. As a frequent flyer and traveler I have sidelined some of my trips due to the cost. In fact a trip across town is taken into consideration more closely because of the sheer cost of fuel. As a once frequent restaurant goer I now eat at home more than ever before. The cost of fuel really effects my day-to-day life.
With the volatility of the airlines these days anything that effects them shows a true representation of the American family. Like that of the already hard hit American families airlines are hurting too as can bee seen in the quote from the CNN article, “Already-depleted cash reserves are dwindling fast, and unless the fuel crisis lessens, airlines face not the now-familiar protracted restructuring in bankruptcy, but outright and immediate extinction”. The families will not disappear but it will affect the American way of life that we have grown so accustomed too.
Fuel costs could ‘devastate’ airlines
Rising fuel costs could drive major air carriers out of business and hurt economy, says report.
By Aaron Smith, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) — The skyrocketing price of fuel could “devastate” the airline industry and hurt the economy, according to a report from the Business Travel Coalition released Monday.
Pressured by rising fuel costs, major airlines could collapse as early as this year, the coalition said. The failure of just one airline could disrupt travel for 200,000 to 300,000 daily passengers and cause between 30,000 and 75,000 immediate job losses, said the coalition.
The failure of more than one airline could result in 100,000 job losses, said the report, particularly in such hubs as Atlanta for Delta Air Lines (DAL, Fortune 500), Chicago for UAL Corp.’s (UAL) United Airlines and Continental Airlines’ (CAL, Fortune 500) Houston.
“Already-depleted cash reserves are dwindling fast, and unless the fuel crisis lessens, airlines face not the now-familiar protracted restructuring in bankruptcy, but outright and immediate extinction,” said the report.
Business travel would be disrupted, as would the airborne supply chain for goods like pharmaceuticals, electronics and auto parts.
Rising fuel costs hit airlines hard. Fuel expenses are expected to total $61.2 billion this year, compared to $41.2 billion in 2007, according to the Air Transport Association.
Some major airlines, such as Northwest Airlines (NWA, Fortune 500), United Airlines, Delta and U.S. Airways (LCC, Fortune 500), continue to operate despite filing for bankruptcy in the last several years. But the credit crisis would make it harder for a bankrupt airline to keep operating while trying to restructure its business, according to the coalition.
The lack of bankruptcy financing is part of the reason why smaller airlines like Aloha, ATA, Champion, Eos and Skybus recently stopped operating, said the report.
Analysts who cover the industry disagreed that a major carrier would crumble this year, because the airlines still have enough cash to survive into 2009.
“I think it’s more likely that any large airline bankruptcies would occur next year,” said Philip Baggaley of Standard & Poor’s, who has assigned his lowest ratings to U.S. Airways, AirTran Airways (AAI) and JetBlue Airways (JBLU). “At least at current fuel prices, most of them have enough liquidity to get through several more quarters. But it could get rather more uncomfortable by 2009. Oil prices are the largest variable.”
Robert Mann Jr., an industry consultant, said the airlines have enough cash to ward off collapse for this year, and that capacity cuts should help them survive.
“The cuts in flying are designed to cut cash loss and that’s what I hope happens,” said Mann.
Raymond Neidl of Calyon Securities agreed that the airlines have enough cash to avoid disaster in the near future, though he expects that the number of carriers will shrink through consolidation.
“Nobody’s going into bankruptcy this year,” said Neidl. “Airlines die slow, and they always seem to come up with the cash to keep going.”
Delta plans to acquire Northwest Airlines, though the merger is yet to be finalized.
How is the cost of gasoline effecting your life? Does it affect you daily? Do you travel less because of the price of fuel? Let the world know how the effects on your wallet…
