With the price of oil at around $60 dollars a barrel and regular airlines making a comeback, their low-cost counterparts might be in for a rough ride, according to a Reuter’s report on the industry.
Healthy economies and strong demand
Regardless of oil prices, airline ticket prices are expected to rise in 2007, boosting profits, as the world economy and demand both remain strong. But the financial prospects for the industry are not the same for all operators.
Coinciding with the next dip in the economy, some operators might feel the pinch more than others. Having been streamlined by bankruptcies and fleet reductions, the older regular airlines will be in a better position to weather the storm. Not so the low-cost airlines. A model that obtained excellent results when the price of oil was at $20-$30 a barrel, at double the price it has begun to show the first signs of faltering.
According to experts, the problem lies in the fact that it is not so easy for low-cost airlines to raise ticket prices because they run the risk of having their customers switch to regular airlines, which are usually more comfortable and regular as their name suggests; that or they might stop travelling altogether. So the industry could be in for another round of bankruptcies and possible liquidations, above all for low-cost operators.
