Soaring Fuel Prices Ground Airlines
Decision Making in a Business Environment
January 20, 2013
As a married man with 3 children ages 10, 5, and 3 I’m faced annually with the question of where to spend our family vacation. We like swimming, the sun, and the beach. Who doesn’t, right? So we start to chart possible locations referencing school schedules, work schedules, and whether the grandparents are going to meet us. This all sounds good until I remember that I live in Cincinnati, OH and the closest ocean or swimmable beach is at best 10-12 hours away. Driving this is not necessarily an attractive option considering the 3 kids, and a car load full of items to keep their interest away from killing one another.
However, the sad truth is that it’s our only realistic option. With airlines ticket prices soaring upward like a 747 with a tailwind, our only options are driving to our destination or taking the ever popular “stay-cation”. You see, airlines are directly affected by fluctuating oil prices in the form of increased operating costs in fuel charges, less passenger disposable incomes and the result of increased competition caused by the Airline Deregulation Act of 1978.
Airlines saw annual revenue and operating costs grow from 1950 to 1970 as a result of more flights and a stable market environment. In 1973 the oil crisis, as a result of the Arab Oil Embargo, quadrupled crude oil prices. And oil prices continued to increase over time. They rose increasingly from 1974-1982. With more competition and less demand, operating costs soared and profit margins dwindled. Expanding airlines saw their rapid boom eclipsed by massive debt and unsustainable growth. At the same time Americans saw a reduction in disposable income. Oil remained a focus for airlines as American demand for gasoline expanded from 1985 to 2009. When oil reached an average annual all-time high of $92 a barrel, in 2008, passenger loads for all airlines were greatly...
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