Can the Airlines survive with only business and elite (weathy) travelers?

Question

I have a friend who works in the travel industry that tells me that by 2009, Airfares will essentially be so high that only the business traveler and the weathy will be able to fly.

I am old enough to remember the 1950s and 1960s and during that era it was so expensive to fly (adjsuted to the wages of that era) that only a few business travelers and people who were quite weathy were flying. Of course there were fewer flights and the Airports were smaller and much more low key back then.

After we tasted the forbidden fruit of relatively inexpensive air travel possible since the mid 1970s, it will be difficult to stay home but the fact that oil prices are so high, the Airlines will not survive unless the fares go much higher and the number of flights go way down.

What do you think about the travel business in an era of rapidly rising costs? Would you vacation to Florida or California if it costs $1000 to go there?

Answer 1

Interesting point. The oil prices are going north and will continue to do so, according to some pudits. In fact, some are predicting that oil will hit $200 a barrel (up from about $130 or so a barrel now). A $1000 ticket to florida from within the US is not impossible.

I personally think that air travel has actually reached a tipping point. A recent study showed that about 23 million trips (about 8% of total US trips I think) were not taken in the US in the last year due to the hassles involved in travel like delays, lost baggage and such. If you add much higher price to the equation, I think that about 30-40% of people will not travel even if they wanted to.

Well, if the tickets to florida were $1000, I as sure as h**l would not fly, but drive down to Florida. If I lived on the west coast, I would not come to florida, but go somewhere nearer to me on the west coast, I think.

If prices keep going up like this, air travel will certainly take a hit. The airlines will not be able to sustain their business if economy class load factor fell by 40%, except on certain routes where there is a lot of demand for business class seats, like transatlantic routes for example.

If economy class load factor falls, then it may even have a spiralling effect on the minds of business community that travel should not be undertaken at the drop of a hat as it is taken nowadays (in my specific industry, at least) and even business class may suffer. The airlines are not cutting down of frequency of flights from now for nothing.

Answer 2

You and Hermes are right.

Airlines used to have 50% loading factor before deregulation in 1978. The fare is much higher than current. During 2001 to 2005, the fare droped to lowest in history due to rapid expansion of low cost airlines. The fare was 40% of it in 1978, but the loading factor have to be over 80% to break even. The scale of airline in 2006 was 4 times bigger than in 1978.

As fast hiking of oil price, the airline industry run out of options( they already cut service and most salary to bone), so they have to put air fare higher,but it erodes the demands, so they have to consolidate, merger,significantly cut flights( supposed 12%, but it needs over 30% to break even)

Only southwest is profitable this year, and maybe 2 to 5 more airlines will shut down in one year, the low cost travel is gone forever, the trancontinental airfare $450 ( used $200), small city lack of competition airfare $700( used $350) Hawaii, Alaska fare $700 to 1000( used $400 to 600)