Tuesday, June 09, 2009

Oil Prices Sneaking Up; Airlines Sweating Barrels

Here's a number to be watching carefully: The price of oil. A barrel of crude cost over $70 today, its highest price since October.

Airlines, already struggling for survival against a breathtaking drop in passenger revenue this year, figured they at least had a respite from soaring oil prices, even though many now have fuel-future hedges in place as a contingency.

Still, the airline industry is simply not structured to operate with oil prices much in excess of $70 a barrel. If oil keeps climbing -- and remember, it hit $147 a barrel last summer, practically giving the airline industry a collective heart attack -- we can look for airlines to further reduce flights, especially as they plan schedules for the fall season.

If this keeps up, look also for new urgency in pushing for anti-trust exemptions for the kinds of deeper alliances being planned by American Airlines and British Airways, which are quasi-mergers on certain routes that will have the effect of raising fares and reducing flights (and competition).

Just last month, Delta and Air France-KLM finalized an agreement on a so-called "joint venture" -- a merger of certain routes, services and pricing -- that would give the venture control of about 25 percent of passenger traffic between the U.S. and Europe.


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