Lost in the conversation about airline fuel prices and falling margins is the fate of airline employees. The most frequent reaction to an increase in the cost of jet fuel is similar to the one in airline mergers. Cost cuts are the most certain way to save money in either a consolidation or fuel price crisis.
Airline stock prices are near 52-week lows. This would not make sense if fuel price increases were not a risk. Passenger traffic has picked up sharply since the recession. The Airline Transportation Association expects the number of passengers worldwide to grow by 800 million between 2009 and 2014. Carriers have also brought in tens of millions of dollars through extra fees like those levied on baggage.
Airlines are likely to start reducing the number of routes that they fly soon along with the numbers of planes they fly on them. The number of jobs at stake is in the tens of thousands. United cut 7,000 workers during the fuel crisis in 2008. American (NYSE: AMR) said it cut its capacity by 12% during the same period.
Airlines have begun to raise ticket prices to offset fuel costs, but it is not clear whether this will drive away cost-conscious travelers. The airline industry is at the vanguard of sectors which will be immediately hurt by the oil crisis. It will be followed by other industries which face similar margin pressure.
Economists expect persistent crude costs over $100 to set back American GDP growth. If oil prices stays high, it is just a matter of which industries begin to waver first. Airlines workers will find that they are at the beginning of the line.
Douglas A. McIntyre
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