What $140 Oil Means To The Airline Industry

Yesterday, the Internet was abuzz with the price of oil reaching $140, with mentions that the airline industry could be on the verge of collapse by year’s end.

Remember 1973?

We’ve known precisely that this was coming for just a little while. Like 1973 to be exact. That was the year of the gas shortage and the infamous gas station lines. We clearly knew then that oil would become very expensive and supplies would start dwindling, soon after the turn of the century.

Here we sit, 35 years later, having done absolutely nothing to avert the situation. In fact all that we did was to build bigger cars, consume more oil and avoid renewable energy sources, almost at all cost.

That brings us to today.

Whether through some form of government regulation or through financial failures, there will be a necessary contraction in the airline industry. We will return to an industry likely more similar in appearance to how it looked 30-40 years ago. By that I mean fewer airlines, fewer choices and higher prices.  Probably nothing can change that, not even an Act of Congress. It’s only a matter of how the airlines contract that is yet to be determined.

The airlines are in Washington telling Congress that we must bring the price of fuel down. They are blaming speculation as the major cause of the recent doubling in oil cost. There are many factors associated with oil pricing, and speculation is likely only one of them. Supply has far outstripped demand, and being redundant, we knew about this 35 years ago.

Deregulation.

Many industry experts believe, as do the major airlines, that re-regulation will not work. Ultimately, regulation will likely cause further inefficiencies and drive airfare prices higher.

Any way you look at it, this is going to be an interesting time ahead.

I look forward to hearing your views.