TOO CHEAP TO FLY H


Part of the challenge faced by airlines is the common expectation that since airfares have dropped significantly in the past 20 years, they should remain there. Fuelled by competition from discount brands (particularly in the US and Europe), flying in and out of remote and regional airports and cutting frills, the typical airline passenger has become used to low cost air travel. There is one big problem with this – costs have escalated, most significantly the cost of jet fuel. Fuel accounts for 27 percent of operating costs and a dollar increase in the average oil price adds an additional $1.6 billion.


The phone youwant. The help you need.


BY ROBERT FINE, MANAGER ECONOMIC DEVELOPMENT CENTRAL OKANAGAN REGIONAL DISTRICT


ow would you like to invest in an industry that has rarely turned a profit in the last 80 years? Yes, welcome to the crazy world of the airlines. According to the International Air Transport Association, the global airline industry lost $50 billion over the past decade. So what is an airline to do?


Some of the traditional discount airlines like Southwest (which recently merged with Air Tran) in the US, and Ryanair in Europe are now finding it more difficult to continue to offer such discounts. And at this rate, the price differential from “legacy airlines” is really not that different from the so called discounters.


The soaring price of jet fuel has driven costs up about 24 percent in the past 18 months while Ryanair’s fuel bills have increased by 37 percent. Ryanair’s controversial CEO Michael O’Leary has previously warned that without buying more planes, growth could only come through fare increases. Ryanair is in the process of grounding 80 aircraft—mainly because of higher fuel prices. As Mr. O’Leary stated, “We can always fill our planes by dropping fares. But with a combination of low fares and high fuel prices, you lose a lot of money.”


In Canada, we might be bucking the trend. Air Canada announced in April that it would launch a discount airline brand that will provide discounted services to holiday destinations. The challenge will remain, however, that the travelling public has become addicted to cheap airfares. Oil prices may change that.


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