Fuel Prices Could See More Airlines Go Bust

Fuel Prices Could See More Airlines Go Bust

As fuel prices rise to over $120 a barrel for the first time since 2008, many travel industry heads and officials warn that the industry could see a rise in the number of airlines that go bust this year as a result in high fuel charges.

Many feel that prices will only increase as the year goes on, especially in light of the Libyan crisis.

Whilst many larger airlines have hedged a large percentage of their fuel requirements, many smaller airlines and independents are not in this position and therefore are at risk. But even for those airlines who have hedged - secured their fuel prices under the ever rising $120 a barrel - there is still a risk of high prices for the balance of the year. easyJet for instance have hedged 70% of their 2011 fuel, but what about the remaining 30%, will it mean the airline is forced to hike up fares later this year to compensate?

Is the Golden Age of Cheap Travel Over?

So the question is, "is the golden age of cheap travel over?" Many think it is, including former Ryanair boss, Tim Jeans. The industry is certainly on the receiving end of punches, not only rising fuel costs but also the increase of the controversial Air Passenger Duty and the increase in green programmes' such as the Emissions Trading Scheme; all of which are edging their way into any profits airlines are likely to make.

Again, larger airlines are slightly better equipped to cope with diminishing profits, only just though. By offering seats with less profit margin but on a higher number will equal a profit at least, albeit a small profit per seat. However small airlines are not in a position to continually price cut and they do not have the capacity to adjust their business model to operate on a make less profit per seat, but sell more seats' basis.

A Vicious Circle For all Industries

The increase is a vicious circle. The increase has an effect on all industries. Households could see their shopping bill rise as foods become more expensive to ship. Energy prices could rise again. If households are having to pay more each week in bills then this could certainly affect their decision to holiday this year.

Downscaling Routes and Capacity?

The fuel prices increase could also mean that some airlines are forced to cut back on the number of routes they operate, effectively undoing all the positive work the airlines have done over the last year. Many airlines have actually added flights and increased capacity due to a higher demand as the travel industry makes a comeback in difficult economic times.

So we can only wait and see if a repeat of the last couple of years is seen across the industry if thousands of holidaymakers are stranded in foreign and UK airports as holiday companies and airlines go bust... Let's hope not.

Worrying times perhaps, but don't be put off booking your travel and forgoing your holiday. Simply make sure your travel is ATOL protected and you had adequate travel insurance to cover cancellation and curtailment and repatriation costs.

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