{"id":281350,"date":"2011-02-24T20:18:32","date_gmt":"2011-02-24T20:18:32","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/02\/24\/oil-shock-threatens-airlines\/"},"modified":"2011-02-24T20:18:32","modified_gmt":"2011-02-24T20:18:32","slug":"oil-shock-threatens-airlines","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/02\/24\/oil-shock-threatens-airlines\/","title":{"rendered":"Oil shock threatens airlines"},"content":{"rendered":"<p><div readability=\"119.975411914\"><span id=\"fb-recommend\"\/><br \/>\n<span>By Aaron Smith, staff writer<\/span><span>February 24, 2011: 3:17 PM ET<\/span><!--startclickprintexclude--><br clear=\"all\"\/><!--endclickprintexclude--><!-- CONTENT --><\/p>\n<p>NEW YORK (CNNMoney) &#8212; U.S. airlines had their best year in a decade in 2010, but with a mere 2% profit margin. <\/p>\n<p>Now that razor-thin cushion is threatened by rising fuel prices &#8212; and with it so is the industry&#8217;s nascent recovery.<\/p>\n<p><!-- REAP --><!--startclickprintexclude--><!--endclickprintexclude--><!-- \/REAP --><\/p>\n<p>&#8220;While labor costs have been going down, fuel prices have been going up,&#8221; said Frank Werner, a finance professor at Fordham University and a licensed pilot. &#8220;Fuel prices are now the highest cost for the airlines.&#8221; <\/p>\n<p>In recent days, travelers have started witnessing the industry&#8217;s response.<\/p>\n<p>Carriers have successfully <a href=\"http:\/\/money.cnn.com\/2011\/02\/23\/news\/companies\/airfare_hikes\/index.htm\">increased airfares four times<\/a> so far this year, exceeding the total number of airfare hikes for all of last year, according to Rick Seaney, chief executive of Farecompare.com. As a result, consumers are paying, on average, $40 more than they were at the end of 2010.<\/p>\n<p><!-- REAP --><!--startclickprintexclude--><!--endclickprintexclude--><!-- \/REAP --><\/p>\n<p>Seaney said that industry is currently attempting a fifth air fare hike. The recently-merged United Continental (<a href=\"http:\/\/money.cnn.com\/quote\/quote.html?symb=UAL&#038;source=story_quote_link\">UAL<\/a>) added a fuel surcharge of $20 on Wednesday and American Airlines (<a href=\"http:\/\/money.cnn.com\/quote\/quote.html?symb=UAL&#038;source=story_quote_link\">UAL<\/a>) matched the fare a few hours later, he said. If consumers are willing to pay these higher fares, then rival airlines have a strong incentive to follow suit.<\/p>\n<p>&#8220;At this point, the carriers can pass through more gradual oil price increases to their customers,&#8221; said Raymond Neidl, independent airline consultant. &#8220;Where the airlines would have a harder time adjusting [would be] a rapid increase in oil prices or high volatility due to unpredictable political developments.&#8221;<\/p>\n<p>An oil shock last hit carriers in 2008, when fuel prices spiked. But the recession stymied their success in increasing fares. So instead, they added <a href=\"http:\/\/money.cnn.com\/2009\/10\/13\/pf\/airline_fees\/index.htm\">ancillary fees<\/a> for services that once came for free, like baggage check, curb-side check-in, pets, food and non-alcoholic drinks. Passengers griped but paid the fees anyway, resulting in <a href=\"http:\/\/money.cnn.com\/2010\/07\/21\/news\/companies\/airlines_revenue_fees\/index.htm\">billions of dollars<\/a> in airline profits.<\/p>\n<p>Airlines also cut capacity: They eliminated their least efficient flights to make sure that remaining flights were packed full so they wouldn&#8217;t lose money on empty seats. On top of that, six carriers merged into three, lessening competition.<\/p>\n<p>&#8220;The number of legacy carriers has declined by half in the last decade,&#8221; said George Hoffer, transportation economist at University of Richmond in Virginia. &#8220;So it&#8217;s much easier to coordinate price increases.&#8221;<\/p>\n<p><!-- REAP --><!--startclickprintexclude--><!--endclickprintexclude--><!-- \/REAP --><\/p>\n<p>As a result, 2010 was the industry&#8217;s most <a href=\"http:\/\/money.cnn.com\/2010\/12\/22\/news\/companies\/airline_fares_profits\/index.htm\">profitable year in a decade<\/a>.<\/p>\n<p>&#8220;But that&#8217;s not saying much,&#8221; said John Heimlich, chief economist with the Air Transport Association, noting that the industry&#8217;s profit in 2010 was relatively modest 2%. &#8220;If we had to start with a 2% margin, we&#8217;ll take it, but we&#8217;re not going to stop with a 2%,&#8221; he said.<\/p>\n<p>The 2% profits equals about $4 billion worth of industry profits in 2010, but that follows an industrywide loss of $60 billion during the proceeding nine years, according to the ATA.<\/p>\n<p>Airlines are now dealing with rising fuel prices, exasperated by the ongoing <a href=\"http:\/\/money.cnn.com\/2011\/02\/24\/news\/international\/saudi_oil_libya\/index.htm\">turmoil in Libya<\/a> and other oil-producing countries, and the rising cost of refining oil into jet fuel.<\/p>\n<p>Now, the industry faces a crossroads. Whether it fails or succeeds in 2011 depends upon two opposing factors: the strength of economic recovery versus the rise of fuel prices amid the political and economic mayhem that is roiling North Africa and the Middle East.<\/p>\n<p>&#8220;I think what&#8217;s going to happen is going to depend upon how long this Middle East crisis lasts and how long the U.S. economy continues to recover from this recession,&#8221; said Werner. &#8220;The airlines are really hostages to the economic environment. When the economy goes south, one of the first things people cut is travel. Travel is a discretionary expense.&#8221;\u00a0<a href=\"http:\/\/money.cnn.com\/2011\/02\/24\/news\/companies\/airfare_oil_prices\/index.htm?section=money_topstories&#038;utm_source=feedburner&#038;utm_medium=feed&#038;utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29#TOP\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.ghanamma.net\/wp-content\/uploads\/2011\/02\/0e63013ebug.gif\" alt=\"To top of page\" border=\"0\" width=\"7\" height=\"7\" \/><\/a><\/p>\n<p><!-- \/CONTENT --><!--startclickprintexclude--><!--startclickprintexclude--><br \/>\n<!--endclickprintexclude--><!--endclickprintexclude--><\/div>\n<\/p>\n<p><img decoding=\"async\" src=\"http:\/\/www.ghanamma.net\/wp-content\/uploads\/2011\/02\/0e63013ebug.gif\" \/><\/p>\n<p>View original post here:<br \/>\n<a target=\"_blank\" href=\"http:\/\/rss.cnn.com\/~r\/rss\/money_topstories\/~3\/a-2q5AvTz_Q\/index.htm\" title=\"Oil shock threatens airlines\" rel=\"noopener noreferrer\">Oil shock threatens airlines<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p> By Aaron Smith, staff writer February 24, 2011: 3:17 PM ET NEW YORK (CNNMoney) &#8212; U.S. airlines had their best year in a decade in 2010, but with a mere 2% profit margin<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-281350","post","type-post","status-publish","format-standard"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.0 - 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