Perspectives: Relentless Fuel Cost Hikes Raise Specter Of Catastrophic Airline Endgame

Business Travel News solicited insight from a broad sampling of industry thought leaders regarding the future for airlines and other travel industry sectors if high and rising oil prices do not abate.



"In the first four months of 2008, total airline fuel costs jumped more than 50 percent compared to the previous year, even while consumption remained virtually flat. Those numbers do not reflect the continued sharp rise in oil prices over the past two months. With every penny increase in jet fuel costing the airlines an additional $15.9 million a month, this rapid spike in oil prices is fundamentally changing the economics of the industry."
Mary Peters, United States Secretary of Transportation

"The average price is $190 for a one-way fare today. Fuel costs for that $190 fare are $138. Throw in another $30 in taxes and fees and that leaves less than $30 per passenger to run the rest of the airline. That is the reason we're cutting these flights out. We can't afford to continue to operate unprofitable flights. Fuel is the only reason for this turnaround in the economic condition of the industry. It's worse than 9/11. It's a condition that has taken us from profitability in '06 and '07 to a projected $10 billion loss this year."
James May, Air Transport Association president and CEO

"The math does not add up for anything but a collapse of the industry if it keeps at a steady state of what we are seeing today. It is more than a bad cycle–it is catastrophic."
Tom Klein, Sabre Travel Network and Sabre Airline Solutions group president

"We built the 2008 business plan last fall at $87 a barrel, which we thought was high. Between October and February, we made some changes to our system, reduced headcount and rebuilt the plan at $115. That plan didn't last 60 days. No business in any industry can make those kinds of extraordinary changes to a business plan in a dynamic real time fashion. No one knows where fuel will fall: Will it go to $200? Will it stop? Will it fall back down? It's hard to know how to protect yourself against the bad news."
Randy Smith, Midwest Airlines vice president of sales and distribution

"In the 60 years that I have observed the airline industry, every decade has had an issue that threatened the viability of some carriers. I can't recall a decade with two such issues. Hopefully, we will return to some sanity in pricing and service. Until there is a resolution of the current fuel costs, that is unlikely."
Harold Seligman, founder of Management Alternatives

"Looking at the cash on hand and burn rate at current oil prices, the airlines have 18 to 36 months. When you look at the cash burn rate, something's got to be done in the next 12 months. I'm not for re-regulation. I think that we have to allow some consolidation, some foreign investment and some fuel subsidy, release some of the Strategic Petroleum Reserve and increase refining capacity."
Danny Hood, BCD Travel president of the Americas

"We're looking at the last man standing. Everybody's got this mentality: Who's going to survive and who's not? I have no idea where the price of jet fuel is going to settle at, but the airlines are fighting for their lives now."
Darryl Jenkins, retired aviation professor and airline consultant

"If a major airline would go out of business, the fallout would be horrific. The businesses and suppliers and the customer impact is just so huge, it's hard to get your mind around."
Robert Coggin, vice chairman of Travelport Distribution Services

"The commercial transient traveler still has to see his clients, but he's being more selective of when and how long he stays on the road and ways to cut back pricing. We're also seeing some business travelers doubling up, which would be an advantage to the all-suite properties. Also, commercial group business is starting to see some softness. For instance, instead of a meeting in Los Angeles, they'll have two separate meetings that people can drive to."
Scott Smith, PKF Consulting senior vice president

"The silver lining of the very dark cloud is that it makes business travel managers one hundred times more important than they've ever been because we are the ones who will be, or should be, in control of not only helping corporations save money, but also of finding ways to work with suppliers to make it easier for employees to do the day-to-day travel situation."
Kevin Maguire, National Business Travel Association president and CEO, University of Texas travel manager of intercollegiate athletics

"I may be firing a couple of big customers who are not as valuable as we thought they were previously. Whoever wasn't really delivering is on the bubble right now. They really no longer can say, 'I'm big, so I need three or four programs.' You have to decide: Are you going to be on my network or on another one?"
Frank Morogiello, American Airlines vice president of global sales

"When you look at a specific event, you have a spike of activity or dramatic trough of activity and that's what happened in September 2001. We had an event with complete cessation of travel for a 72-hour period. Bookings completely stopped. Behind the scenes the number of exceptions—refunds, changes, voids—skyrocketed. Back then, there was this spiky activity of super highs and super lows, then back to some sense of normalcy relatively quickly. Currently, we are looking at the price of a commodity that is essential for everything that everybody on the planet does. That means a bigger impact with more recovery time and it will have an influence on each of us as travel-related companies."
Trip Davis, TRX president and CEO

"Clearly, high fuel costs are here to stay, impacting the entire business travel industry. Rising fuel costs affect airfares, which have the potential to have a domino effect on other sectors such as hotels and car rentals. This environment is prompting travel managers around to globe to ask themselves, 'How can we achieve our business objectives while still controlling the spiraling cost of travel spend?' Unfortunately, the next question asked is usually 'Do I even have the information I require to answer that question?' "
Raj Singh, Concur president and COO