Oil shock threatens airlines recovery

February 25th, 2011 - 7:51 pm ICT by Aishwarya Bhatt  

New York, Feb 25 (THAINDIAN NEWS) Whoever said the world is a global village is very right. Whatever happens in one country quickly ripples its effects on the whole planet.

The airline industry is currently under threat because of the soaring prices of crude oil. Before the protests in Middle East and North Africa began, oil prices were relatively stable around the $80 mark. After the world suffered the effect of high oil prices in 2008, many people hoped that at long last the right price of oil has been found.

That seems not to be the case. Driven by fears that supply would be disrupted as a result of all the violence that are taking place in the Arab world, the price of oil reached the $120 mark on Thursday. That was the first time in more than 2 years that the price of oil has been that expensive.

The US airline industry has been struggling since year 2000. The industry had its best year in 2010 when it made a profit margin of 2%. The 2010 gains would be wiped out if the price of oil remains high.

Players in the industry complain that after they managed to bring labor cost down by cutting their workforce, the price of oil seems to have eaten away any progress that they made. They estimate that fuel is currently the highest cost for the airliners.

The industry reacted by increasing the rates of some categories of their tickets. There is a limit to how far the airliners can increase their fares because of stiff competition. The industry have to come out quickly with ways to survive or face a certain collapse.

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