We have all seen the dramatic drop in the oil price in 2014 and we have noticed that some airlines have continued to maintain the same level in their airfares despite dropping the infamous fuel clause that was used to justify the rise in airfares over the years to keep pace with the ever increasing price of oil and the burdening effect this had on the operational costs in the airline industry.
Many airline press releases tell us that the present airfares are kept at the present level to cover the years of financial deficits that have been incurred while the airlines struggled to maintain their pricing competitiveness and that the airlines will continue to use the profits generated to strengthen their airline companies’ balance sheets. In order words, airlines intend to profit from the present situation for as long as possible.
This brings me to look at the ebb and flow in the airline industry. Because despite the opportunity to benefit from lower fuel prices, there are still many airline companies struggling to survive financially or are on the brink of bankruptcy. The burgeoning overhead costs of the legacy carriers, the burdening operational costs that in most cases cannot be deferred or offset on to the passengers and the gnawing competition from the low-cost carriers and from the cash-rich middle-eastern carriers are taking a toll on the state of the airline industry.
Despite the aforementioned detrimental situation, I am intrigued by the fact that there are still many airline companies vying to enter the airline industry. To a certain extent, this can be understood. With record profits being made in the industry presently, entrepreneurs and investors see an opportunity to enter into a market that has enormous potential for huge amounts of revenues and profits. Also, as more aircrafts are being built on the promise of efficiency in both technology and fuel consumption, it is certainly attractive for new airline companies to try to enter the market if they are certain their business model can be operated more profitably and more efficiently than their predecessors.
So, on the one hand we see the rise and fall of oil prices, air fares, profits and losses and the exit and entry of old and new players in the airline market industry. On the other hand, like the moon having a tremendous effect on the ebb and flow of the ocean on our planet’s surface, it tickles my imagination to know what exactly is causing the similarly ebb and flow in the airline industry? Is it the just the life-cycle that every airline company must go through or is it because of the restless nature of man to be forever on the move, whether up or down, like oil prices, airline fares and company profits?
Terrance Rey is owner and managing director of Let’s Travel, Travel Anywhere and AirStMaarten. Terrance Rey has 15 years experience in the travel business as a travel agent, tour operator, charter broker and as an internet travel entrepreneur. You can email Terrance Rey directly via firstname.lastname@example.org with any questions you may have relating to your international travel needs.
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