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Airlines cut routes, jobs to deal with fuel price

Airlines cut routes, jobs to deal with fuel price

As oil prices soar, airlines are coming back down to earth with a bump - cutting routes and capacity, ramping up prices and axing jobs as bosses freely admit the industry is in the "worst crisis since 9/11."
Oil prices on Friday broke through the US$139-a-barrel level for the first time in New York and US$138 in London, powered by a wilting dollar.
A weakening U.S. currency lowers the cost of dollar-priced goods, such as oil, for foreign buyers and drives up demand.
With sober analysts such as Goldman Sachs suggesting the price could reach US$200 a barrel within two years, the aviation industry appears to be in a nose-dive.
Operating costs
Airlines are particularly susceptible to hikes in the oil price, as jet fuel makes up a substantial part of their operating costs.
For customers, already facing escalating food prices, and, at least in Europe, rising inflation and higher interest rates thanks to a credit-crunch, the effect is likely to be steep rises in ticket prices.
"The industry needs to raise average fares 15 percent to 25 percent to be profitable with crude at US$125," according to an analysis by Credit Suisse.
"As one carrier raises fares, we feel comfortable others will follow," it warned. So far U.S. airlines are taking the brunt of the hit. Continental Airlines said Thursday it would cull 3,000 jobs and ground 67 aging planes in a massive retrenchment due to the price of fuel.
Worst crisis
"The airline industry is in a crisis. Its business model does not work with the current price of fuel and the existing level of capacity in the marketplace," Continental's chairman and chief executive Larry Kellner and president Jeff Smisek said in a statement this week.
"The industry faces its worst crisis since 9/11," the pair wrote in a letter to employees.
Continental's cuts on Thursday came a day after United Airlines's parent company, UAL, announced it was removing 100 aircraft and cutting up to 1,100 jobs. Two weeks earlier, AMR, the parent company of U.S. market leader American Airlines, announced big cuts in domestic flights, shed workers and raised some fees for passengers.
So far this year the industry has eliminated nearly 22,000 jobs, compared with 21,710 for the whole of 2007, according to global outplacement firm Challenger, Gray and Christmas.
Where the U.S. leads, others follow, from Australia to east Asia to the low-cost budget airlines that have opened up so many routes for holiday-makers in Europe.
Dublin-based no-frills airline Ryanair said this week it had taken a 10.3 percent hit in net profits for 2007-2008 and would break even next year - but predicted other low-cost carriers would go to the wall.
The famously combative CEO also announced Ryanair would ground up to 10 percent of its fleet this winter and increase fares by an average of five percent.
Silverjet, the British no-frills business-class carrier, went into administration at the end of May.
"Several airlines in Europe will go out of business," the head of the German unit of Britain's Easyjet, John Kohlsaat, told German daily Der Tagesspiegel last week.
According to the International Air Transport Association, 24 airlines have gone bust in the past six months, with its member companies facing potential losses of US$6.1 billion this year if oil remained around US$135 per barrel.


Updated : 2021-04-21 07:57 GMT+08:00