Budget airlines badly hit.
By Well it’s been a bad week for the airlines. With the safety problems on board American Airline’s MD-80 planes, the company was forced to ground 300 aircraft (a large portion of its fleet), leading to thousands of flight cancellations. This spate of safety actions is as a result of the increased scrutiny of the FAA, after it came out last month that Southwest had been flying without proper inspection. The situation appears to be over for American Airlines with all planes back in the air and service running as normal. The more long term issue in the aviation industry which is coming to light is the collapse of multiple budget airlines.
There is now a growing list of low-cost carriers who are going bankrupt. They include Oasis, Skybus, Aloha, ATA and Frontier. These airlines are the latest casualties of the current difficult economic situation, someone in government will have to use that ‘R’ word at some point. Budget carriers the world over are notorious for running close to the wire with razor thin profit margins. This is an obvious result of the ultra-competitive market in which they operate, in a situation where the customer isn’t paying for any sort of in flight service they will simply go for the cheapest option. Therefore when running costs increase, they can’t absorb them as lost profit as some of the more expensive operators are able to.
It looks like its going to get even harder for the budget airlines still in operation, as oil is yet again on the up. Its currently sitting around the $113 mark but there seems little reason for it to fall back. Will Oil close below $100 before the end of April? Hubdub users currently don’t think so. Interestingly gold has fallen back as money goes back into the oil markets. Will it get back above $1000/oz?
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