The skyrocketing price of oil has landed the airline industry in the midst of a "full-blown crisis," according to a report published by a U.S. travel industry consumer group.
The dire report conducted by AirlineForecasts, LLC, for the Business Travel Coalition (BTC)claims the industry has "never faced a darker future." It coincides with news from two more North American airlines that have announced they will begin charging for the first piece of checked luggage.
United Airlines and U.S. Airways will start charging customers US$15 for the first checked bag, a move that follows similar decisions in the past few months by other American and Canadian airlines that have announced charges for passengers checking in first or second pieces of luggage.
The airlines have said high fuel costs have cut into their bottom lines and substantially increased their costs.
"As a consequence of the skyrocketing cost of oil, the U.S. commercial aviation industry is in full-blown crisis and heading toward a catastrophe," said the BTC report.
The report notes that if oil continues to hover around the US$130 mark, then "all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009."
A business analyst told CTV.ca, there is little doubt the industry is hurting both in Canada and the U.S. But Joe D'Cruz, a management professor at the University of Toronto, said Canadian airlines are in "reasonably good shape."
"In Canada, the industry is insulated by a couple of things," D'Cruz told CTV.ca, noting that the overall Canadian economy is in better shape than its American counterpart.
"We (also) don't have the intense (airline) competition. There is competition, but the airlines refrain from destructive competition. (And they) seem to pass on increases in high oil prices to travelers. They are hurting, but they are not in a disastrous shape."
D'Cruz said that even in the U.S., there have been much worse times for the industry.
"For example, after the dot-com bust in the 1990s -- when business travel was the main profit engine of the industry -- that era was much worse than the current era."
The BTC report notes that consumers will continue to face rising air travel costs in the coming months. The study said that industry fares in the U.S. will have to increase at least 20 per cent to cover the increased fuel costs.
"Airlines can attempt to radically shrink the industry," according to the study, but it notes that is unlikely due to the competitive nature of the business.
"Instead, absent direct policy intervention, the likelihood is that there will be more bankruptcies, including some liquidations."
The study recommends that government regulators and politicians take action, noting that in the coming weeks, BTC will make specific recommendations.
