A REAL CRISIS IN THE AIRLINE INDUSTRY

Airlines are known to be whiners. They always complain about how little money they make and how much money they spend. It is true, though, that the margin of profit in this industry is way smaller than, say, in the software industry or in the entertainment industry.

But now it seems that a real crisis is threatening airlines all around the world. For the last 2-3 years oil prices have been on the rise, and now, when a barrel of crude oil hits $110, the panic is showing. Of course, oil prices effects not only commercial aviation. There isn’t one aspect of our life that is not being affected by energy prices. But the airlines are showing signs of severe stress.

U.S. airlines are the first to show those signs, as we can see in this reporting. While European and Asian carriers are bathing in endless cash, U.S. carriers seem to struggle for every penny. One of the biggest problems for the airlines of America is that their fleets are much older than the world average, resulting in higher fuel expenses for every kilometer. When Delta says it may ground planes and cancel flights, one can imagine it refers to some antiques such as the DC-9s in its disposal, which are burning much more jet fuel than a new generation 737 or A320.

No airline faces grimmer prospect than American. It has the oldest fleet, and it is unclear how it can survive in the medium and long terms when it hasn’t ordered any new planes for years. Even if a miracle will happen, and American ordered dozens of new 777s and 787s today, paying for them with some gold treasure found in the Pacific, it still won’t get any of the planes in the next 8-10 years, due to the enormous backlog at Boeing. The problem is, not even this “optimistic” vision is relevant for American.