Airlines Predicted to Lose Over 5.2 Billion US$ in 2008

Airline Costs and Instabilities Could Lead to Wild Ride Ahead for Travellers

According to industry news outlets today, airlines could lose over 5.2 Billion US$ in 2008. What could this news mean for airfares, travellers and vacation hotspots? Price wars anyone?

Fuel Price is a Major Factor

The International Air Transport Association announced today that a revised financial forecast reports that the global airline industry could show losses of over 5 Billion US Dollars in 2008.

Industry analysts are reporting that although the price-per-barrel of oil has shown some stabilization over the past several months, the year-to-date average price of a barrel of oil is over 40$ higher than the average price for 2007.

Fuel prices continue to take an ever increasing larger piece of the airline industries operating expenses, up to 36% of total operating costs in 2008, up from just 12% in 2002.

Slowing Demand Compounds Issue

The International Air Transport Association also reports a significant slowdown in the overall growth of passenger and freight business.

Despite the reduction in growth of demand, industry capacity, measured by the total number of both passenger seats and air freight tonnage available, continues to grow above the rate of demand.

What Does This Mean for Travellers

As any first year economics student can tell you, any time you have a situation where that supply (in this case the passenger and freight capacity) grows, while the demand slows or stops, there is a general downward pressure on the price, freight costs and ticket prices.

While this would normally lead to lower ticket prices (price wars), the general instability in the airline industry could result in mergers and bankruptcies. This could instead lead to further increases in fees by lowering weight limits for checked bags and luggage. The best way to combat this would be to invest in new lightweight luggage and FAA compliant carry-on bags in order to reduce the need for checked baggage altogether.

The best advice that we could give to anyone considering travel in the near future is to buy tickets very carefully and make sure that your tickets are either refundable or will be honored by other airlines in case one or more airlines begin dropping like flies.

Make sure to subscribe to our RSS Feed in order to stay up to date with this and other travel related stories.