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September 6, 2008 2:42:49 AM CDT

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Airline Business Model Won't Work With $130 Oil

Posted May 23, 08 10:40 AM CDT in Business 

(Newser) – The airline industry as we know it can’t function on $130-a-barrel oil, industry analysts are saying, and cost-cutting, ticket price increases, and bag-check fees won't make it viable. The Dallas Morning News looks at how hopeless it is for airlines to come anywhere near break-even at current costs, noting that an expert said last fall it couldn't be done at anything more than $80 a barrel. 

"If it goes to 90 bucks a barrel, " he told a national aviation conference in October, "I don't know, invest in Enron or something." Airlines are likely to spend an extra $16 billion on oil this year, a trade group predicted; financially, that’s like employing an extra 244,000 workers. American Airlines says each oil-price increase of $10 costs an extra $800 million annually. Expect more consolidation, "major capacity shrinkage," and more bankruptcies.

Source Dallas Morning News

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American Airlines CEO Gerard Arpey pauses during a news conference AMR corporate headquarters in Fort Worth, Texas, Thursday, April 10, 2008. Arpey took responsibility for the cancellations due to planes...   (AP Photo/LM Otero)
A lone traveler walks in the deserted baggage claim area for American Airlines, Thursday, April 10, 2008, at O'Hare International Airport in Chicago. Gerard Arpey, the chief executive officer of embattled...   (AP Photo/Pablo Martinez Monsivais)
A Delta plane taxis for takeoff past a Northwest plane at Portland International Airport in Portland, Ore., Wednesday, April 23, 2008.   (AP Photo/Don Ryan)
In this Aug. 29, 2007 file photo, American Airlines aircrafts are shown operating at Dallas-Fort Worth International Airport in Grapevine, Texas.   (AP Photo/Tony Gutierrez, file)
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oil price  • airline industry  • airline  • American Airlines  • merger  • airline ticket prices


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