Fuel Prices and the Airline Industry

The price of the July light sweet crude on the New York Mercantile Exchange traded at a record high of $139.89 a barrel on June 16 and came within a whisker of breaking $140.00. Oil prices have since traded down to $132.00 on June 17, but the negative impact on the major oil users such as the airlines has been quite evident.

We have seen a broad move to insert a fuel surcharge for passengers. Now we are seeing more moves to make passengers pay for the high fuel charges. Many airlines have instituted a surcharge for the second baggage checked in, but United Airlines and American Airlines have gone a step further and are now going to nail passengers with a $15.00 fee for the first checked baggage. United Airlines estimates that the extra fee will generate about two hundred and seventy-five million dollars annually in revenues.

The reality is that, whether we like it or not, there is no alternative for the airlines if they have any hope of surviving the high cost of jet fuel. The recent moves show that there could be more charges forthcoming should fueling costs continue to trend higher. It will be a sort of pay as you go for any additional service other than your airline seat. Years ago, it began when full meals for non-first class were removed. We now get a complementary drink and a snack.

Other airlines are charging for reserving seats, with higher fees for window seats.

At the end of the day, any extra service you want when flying will cost you. I for one don’t care how I get there, as long as I do. Perhaps seats situated beside the washroom will be discounted due to the heavy traffic; I for one don’t really mind hearing the toilet flush on a regular basis if it means paying less.