Industry Spotlight: Airlines and Transportation Costs

While the airline industry model has been flawed for some time, the impact of skyrocketing fuel prices has caused severe turbulence. Smaller airlines are closing down, unable to successfully pass on fuel costs, and filing bankruptcy as a result. Many of these bankruptcies will result in liquidation.

Mergers are taking place, with the most recent big deal being Delta’s takeover of Northwest. Many overlapping routes will be eliminated and the number of flights between cities will more than likely decrease—as will many Northwest jobs along with them. After all, airline mergers are supposed to be effective because of cost reductions—meaning a reduction in flight routes, equipment and people.

All of these changes undoubtedly will result in reduced competition and higher ticket prices. These events also can be expected to flow over into air freight. If the airlines raise their prices, it will give room to other transportation segments to do the same.

We recommend keeping a sharp eye on these developments and how the higher costs will affect your business.