Sky-High Fares Here To Stay-Minyanville

BUSINESS & MARKETS

LIFE & MONEY

VIDEO

COMMUNITY

SUBSCRIPTIONS & PRODUCTS

Sky-High Fares Here To Stay

Andrew Jeffery Jun 20, 2008 9:45 am


		Ticket prices will go up or airlines will go under.

Would-be travelers are keeping their fingers crossed the air will soon seep out of what many are calling a bubble in crude. Certainly, that will bring relief from sky-high fuel prices. Airlines can then drop all those silly fees. Life can return to normal.

If only it were that simple.

Earlier this week, Scott Kirby, President of US Airways (LCC), shed some light on the future of fare hikes and fees. Given its current cost structure, the airline needs to charge $700 per passenger per flight just to break even - well above its current average ticket price. Whether it's fare hikes or surcharges (for additional luggage, meals, pillows and blankets), prices are either going up or airlines are going down. Some believe both will come to pass.

STOCKS
RELATED ARTICLES
ALSO BY...

Oil prices have remained stubbornly high, despite interventionist political rhetoric, offshore drilling proposals and ineffective summits in Saudi Arabia.

Then yesterday, a change in China's energy policy offered a ray of hope that surging global demand may begin to taper off. Chinese authorities are scaling back oil subsidies and pushing up domestic fuel prices. Analysts hope bigger tabs at Chinese pumps will slow what many believe is the unnaturally high demand such subsidies create.

But even if crude tumbles, it will offer little solace to travelers.

Not only has persistently high crude doubled fuel expenses over the last year and all but eroded the industry's already thin margins, but the lion's share of cust-cutting was undertaken after 9/11, leaving airlines with few options going forward.

Competitors like Northwest Airlines (NWA), United (UAUA) and Delta (DAL) are trimming the fat where they can, reducing capacity and canceling flights simply because they lose money each time a plane takes off.

Consider that the next time your flight is canceled due to “weather” just as the sun shines and a gentle breeze blows in off the putrid swamps of Secaucus, New Jersey. Yet another failed attempt to fly out of Newark International Airport.

Is oil the next bubble?
Minyanville's Buzz and Banter -14 day FREE Trial


Rate this article:			(0 Votes)

more BUSINESS & MARKETS articles »

Daily Article Index �

tags:

NWA, CANCELATIONS, SUBSIDIES, NORTHWEST, NEWARK

Comments (5)

See All Comments »

Dean Simmons

View Exchanges


06-20-2008, 10:45 am
Prof. Jeffrey, I think Scott Kirby explained to you why his airline is going to go bankrupt again. More to the point, a lot of regions (Vermont, Colorado, Florida, California) derive a fair share of their economy from touris Read More

Andrew Jeffery

View Exchanges


06-24-2008, 3:24 pm
Dean, No doubt - I don't think US Airways will have a chance to see tickets up that high. I'm not sure the knock-on effect will be people throwing up their hands and just spending at will, but you may be on to so Read More

Dean Simmons

View Exchanges


06-24-2008, 3:37 pm
I think the effect will be similar to a Rolls Royce - if you worry about the gas mileage you won't be able to afford it in the first place. I think travel will diminish, including business travel (my employer has cut back), but just as in housi Read More

Andrew Jeffery

View Exchanges


06-24-2008, 4:31 pm
What will be interesting is to what extent the social mood changes Pep keeps finding will be strong enough to turn people against the Rolls and Hilton just for what they stand for. Read More

Dean Simmons

View Exchanges


06-25-2008, 3:06 pm
Ah. So people who could afford to rent the Rolls will rent the Chevy just so no one will throw rocks at them as they pull up to the Motel 6 instead of the Hilton. On the other hand, if people drive instead of flying (which is more econom Read More


discuss this article and more on the mv exchange

No positions in stocks mentioned.

Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2009 Minyanville Media, Inc. All Rights Reserved.