Airline Business Model Won't Work With $130 Oil

Analysts say current model won't work at $130 a barrel
By Matt Cantor,  Newser Staff
Posted May 23, 2008 10:40 AM CDT
Airline Business Model Won't Work With $130 Oil
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 that did not meet a federal safety rule on electrical wiring.    (AP Photo/LM Otero)

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. (More airline stories.)

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