Airlines' losses could be bizav's gain

By Andrew Wood

July 1, 2008
Business Aviation, Aerospace Industry

There’s that old saying, “It’s an ill wind that blows nobody any good.” And if ever there was an ill wind, it’s the one that has been generated by the price of oil and its effect on the airlines. But that same wind is bringing new opportunities to business aviation, with the prospect of expanded operations and the likelihood of added airplanes to the industry’s fleet.

At press time, the escalating cost of jet fuel had already brought about the collapse of several smaller regional airlines and had caused United, Continental and US Airways to park or return to lessors almost 200 aircraft from their domestic fleets and lay off several thousand employees. Earlier American Airlines announced it would reduce system capacity by as much as 12 percent after the current summer season. But according to industry observers last month, this was just the beginning, with some analysts predicting that to stem its continuing cash hemorrhage, the U.S. airline industry would have to reduce its nationwide capacity by at least 20 percent, while raising fares and further shaving what passes for service these days.

Analysts expect further airline bankruptcies, with some well known names going to the wall. Only Southwest is considered relatively immune to these effects due to its aggressive fuel-hedging program, where its strong cash position has allowed the company to negotiate with fuel suppliers for future quantities at well below market price. Reportedly, Southwest has firm commitments for more than 50 percent of its 2009 jet-fuel needs at the equivalent of $53 per barrel of oil. (At press time, a barrel of oil had reached $140.) According to industry experts, no other major carrier has hedged more than 7 percent of its future needs. Meanwhile, some observers speculate that by the time the fuel crisis is over–and no one knows when that will be, of course–Southwest will have become the nation’s leading airline.

The key issue, however, is accessibility. Industry sources predict that most airlines will start reducing or eliminating their least profitable routes. For example, a Continental insider suggested that the company planned to almost completely withdraw its services to Florida, California and some other states. What this means overall is that the airlines will be offering fewer seats to fewer places on fewer, but more crowded, airplanes. Passengers can also expect higher fares, less service and no access to many smaller destinations.

So, while devastating to the airlines, this ill wind brings windfall opportunities to business aviation. Bizav’s concerns about the steadily rising cost of fuel should be mitigated by the airlines’ inability to serve customers’ needs. When airline service becomes so impractical that would-be travelers are told, “You can’t get there from here”… “We have no seats available until next Thursday, but we can get you on a 6 a.m. departure that day”...“Our return flights are full until Saturday evening, but you wouldn’t make your onward connection then,” flight department managers should be poised to leap at the opportunity. Right now, they should check with their company’s airline reservations people to determine which small airports the company’s managers most frequently try to get to on which airlines, and then keep track of the changes or outright cancellation of airline service to those airports. This could be valuable ammunition for bolstering the existence of the flight department.

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