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Fasten your seat belts

Could the deregulation and end to government subsidy that sparked the boom in air travel be about to hit the buffers in the place where it began?

A report in the US on the state of the country's airlines warns the industry is "heading toward catastrophe" and calls on legislators and regulators to make saving it "a national priority". That sounds like a call for intervention.

US carriers are haemorrhaging cash and jobs and, come October, aircraft will outnumber cacti in the Mojave Desert.

A study by AirlineForecasts and the Business Travel Coalition, released today, concludes the top ten US airlines will spend $25 billion in higher fuel costs this year and need to raise fares by at least 20% across the board to stay afloat.

The study's authors conclude such an increase can't be achieved without a substantial fall in air travel - and they argue individual carriers are not capable of achieving the necessary cuts. They warn: "Absent of direct policy intervention, the likelihood is several airlines will fail."

Of course, airlines going bust would remove capacity - and some will argue 'let the market rip' to ensure exactly that.

But consider three factors. One, the authorities have been highly reluctant to do this with the banking sector.

Two, attempts at consolidation - which would allow major capacity reductions - have so far met with limited success. Delta is to merge with Northwest pending regulatory approval, but United and US Airways have called off a proposed marriage because of the cost and Continental is searching the lonely hearts columns.

Three, the US is in an election year and failing to stave off collapse in what is the only national, public transport system - and among companies that are often national institutions - will not go down well.

So watch out for Obama and McCain on the campaign trail, especially in Atlanta, Chicago, Dallas, Houston, Los Angeles, Miami, Philadelphia, Seattle, Washington . . .

Read the study yourself - Oil Prices and the Looming US Aviation Catastrophe - at http://tinyurl.com/6qhh99

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This page contains a single entry from the blog posted on June 13, 2008 6:01 PM.

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