The last couple of weeks have certainly been interesting in the airline industry; not so much for what has happened, but for what hasn’t happened.
A month ago the industry grapevine burned up with rumor after rumor about a possible merger between Delta and Northwest Airlines. Merger talks reportedly were going full steam until it came time to get buy in from the pilots union. That’s when things came to a grinding halt (at least that’s the way it appears to be). Now, it’s dead quite.
Meanwhile the price of oil continues climbing. Yesterday it reached $110 a barrel. This week the average price of jet fuel is $3.10 a gallon. That’s up more than 60 percent in the past year.
At some point fuel prices will force the airlines to start cutting flights. But when? It’s a tricky question to answer because the flying public continues to fly despite higher fares; the airlines reported robust February passenger numbers. At what point will customers balk at the higher fares? And then there's fuel hedging. The practice gives the airlines some breathing room, but for how long?
Here's an interesting story from Reuters about airline fuel hedging. Stay tuned…