I have been involved in some research on commodity prices, travel and the economy in general and this is one of the topics I want to get a good grasp on.
Recently Indian airline IndiGo’s chairman said they are facing intense heat with the crude prices around $110 per barrel along with a general growth in world-wide inflation powered by increase in commodity prices and raw materials.
Coming down to the simple question, what do you all think about this? Will the current low-cost model be sustainable for long term? I don’t remember who (I think it was Willie Walsh) but a major airline CEO said that eventually all current low cost airlines will have to up there prices significantly, which is what the legacy carriers charge today. Which makes sense for certain routes such as AirAsia into Stansted or V Australia to LAX. But will airlines like Ryanair, which is immensely successful be able to charge 50-60 pound return flights long term?
I remember being at a conference in 2008 where Saudi Aramco’s (largest crude producer) CEO said that there is plenty of oil in the world and he did not understand, at that time, why the price of crude oil was around $120 p/b.
What are your thoughts on this?
By: nJayM - 20th May 2011 at 17:41
Here is an excellent paper if you wish to know more …
What are your thoughts on this?
Hi Kabir
Here is an excellent paper (its from Cranfield) on Airlines and Fuel ‘Hedging’
My bets are on fuel economic aero engines and aerodynamic enhancements, alternative fuels for aero engines, and in the long term future completely revolutionary designs.
Along with this first line military usage of UCAVs as they are lighter and far more fuel efficient.
As for Low Cost Model or conventional carrier the implications are the same – nothing stays still when crude oil climbs – so a LCC ticket at say £1 may be £1.50 next year
By: jbritchford - 20th May 2011 at 14:45
The low cost carriers still have a place, as their business model saves money in many areas compared to the traditional airlines.
Fuel will increase every airlines bill, but the cheapo ones will continue to offer a less expensive service.
By: ThreeSpool - 20th May 2011 at 13:26
I’ve thought about this and the rise in price will affect the LCCs more than the legacies because the customer base that each attracts. How many people travel on LCCs because the price is so cheap, will that be the same when their cheap jaunt abroad isn’t so cheap. The people that fly the legacy airlines will more than likely pay the price hike and travel anyway.
By: tenthije - 20th May 2011 at 13:05
The fuel prices also rise for the legacy carriers, so the low cost carriers will still be around. The price difference might shrink, but I don’t think it will be enough to kill them of.
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May 20, 2011 at 1:35 am