Canadian Press
“How does an airline compensate itself for the losses that are occurring for the first quarter and the second quarter and maybe even the third quarter this year? Fares are not going to track the price of oil, because there is this residual loss that has to be accounted for,” said Jay Sorensen, president of consulting firm IdeaWorksCompany.
For now, the ballooning price of kerosene-based fuel — the oil derivative that powers planes — means older, less energy-efficient aircraft and routes with thinner earnings need to be axed, he said. That carriers have opted to park many planes in storage — Lufthansa cancelled 20,000 summer flights this week — points to how dire the situation is.
“When an airline grounds an airplane or cuts back flights, that’s an indicator of true financial pain, because this is a business that thrives on increasing activity over a fixed-cost base,” Sorensen said.
“It’s going to be a horrible year for the airline industry.”