The airline industry is clearly in a crisis situation, thanks to the high oil prices. Several have filed bankruptcy. Others are talking about merging with others. All of them are hiking fees and fares, but it may not be enough to save them. How many airlines will be left standing in the next year or two? No one seems to know.
American Airlines is reportedly losing $3 million a day, and that can't go on indefinitely. Experts say that the industry just can't survive if oil is going to cost $120 per barrel. They say passengers won't pay the kinds of fares it would take to keep the airlines profitable with fuel that expensive. There is a certain amount of fuel that must be used in the airplanes currently flying, and that amount of fuel means flights can't be profitable.
Even mergers, which typically can help beat-up companies as they are able to collectively cut costs by eliminating duplicated jobs and services post-merger, might not help. And even though the concept of airlines losing money isn't a new one (haven't most of them been losing money for years on end?) they're now in a unique position: Most cost-cutting measures have been taken and there is little else to cut.
So what happens to air travel? Leisure travelers will find other places and ways to vacation. Business travelers don't have such a luxury. The world economy dictates that many people must travel on a regular basis in the course of their business.
They'll likely be forced to pay significantly higher prices if there are even flights available for them. It's clear that a wholesale change is in order for the airline industry, and consumers will not be a benefactor in this. We're going to pay dearly, and it doesn't seem that there's anything that can be done about it.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Take the first steps to building your portfolio.View Course »