The price of oil peaked at $147 a barrel in July but now it's $43.46 -- a 70% decline. This is good for the airline industry because jet fuel is one of its biggest costs. Now the International Air Transport Association (IATA) estimates that if in 2009 the price of oil averages $60 a barrel, the airline industry's loss will be $2.5 billion for the year. That may sound like a lot, but in 2008, the IATA estimated the industry will lose $5 billion.
Unfortunately, the industry is suffering from a decline in passenger traffic due to the economic crunch. The IATA estimates a 3% decline in international traffic. Interestingly, the U.S. carriers have also benefited from an 18% strengthening in the dollar and they've cut back on flight capacity so they could raise prices. Passengers could benefit; however, if the airlines decide to try to fill up their planes by cutting prices to reflect their lower jet fuel costs.
That would be great news for the public and the higher revenues might also reduce airline losses.
Posted Dec 9th 2008 12:12PM by Peter Cohan
