Airlines struggle as oil hits new highs: Expansion plans curbed

The relentless increase in oil prices is prompting airlines to put a brake on grand expansion plans and further tighten their belts.

With jet fuel prices on the Singapore spot market surpassing US$115 a barrel last week, the business environment for airlines is becoming more hostile, requiring the industry to radically rationalise operations in order to survive
For starters, the spiralling oil prices are slowing the global economy, which has hindered passenger traffic from rising above the annual 6% growth projected by the International Air Transport Association (IATA).

”The rosy picture of (healthy growth) that we saw in the past two years is quickly diminishing,” said Prasert Prasarttong-Osoth, founder and chief executive of Bangkok Airways, Thailand’s largest private airline group.

”We are flying into a huge black cloud embedded with powerful turbulence,” the respected airline veteran told the Bangkok Post.

The new paradigm, he said, is that carriers can no longer gamble on new routes. They must halt additions of new aircraft, terminate non-performing flights or trim the frequency of existing low-traffic routes.

Due to strong cost pressures, he noted that airlines, including his, need to achieve an 80% load factor on a specific route, up from 65% previously, in order to make the route economically viable.

Bangkok Post