Here’s an arresting fact: The increase in jet fuel costs from a year ago that airlines are currently dealing with totals around $25 billion in additional costs for carriers, which is about five times more than the airline industry has ever earned in a single year (1999 was a record year for the industry, with profits topping out at about $5 billion).
That comes via the Wall Street Journal, whose Middle Seat column yesterday puts some good perspective on just how much the airline industry is hurting (as Grant posted yesterday, American is to begin charging money for your first checked bag in June). Airlines are faced with staggering expenses even as they know that countering them would mean having to make more money than they ever have before.
What can they do? Scott Mccartney, the WSJ‘s Middle Seat columnists, says to expect airlines to begin severely cutting capacity, eliminating money-losing routes, which in turn will increase ticket prices. “The price of flying has to go up if airlines are to survive,” he says. Also, expect some carriers to head to bankruptcy court beginning next year, which isn’t such a bad thing, Mccartney says. With fuel prices hitting $130 a barrel and airlines faced with major shortfalls, bankruptcies would be healthy for the industry, as the weakest carriers bow out and the market consolidates.