Its as if the airline industry has flown directly into the perfect storm. Just as air travel volumes reclaimed their pre 9-11 levels, surging oil prices began threatening airline profitability. In response to oil prices, some airlines locked in rates while others took their chances with the volatile oil market. On average fuel costs consume 24% of an airlines operating budget and labor takes another 22%. Pilot unions have a firm grip on labor costs and negotiations with the unions have been futile. Additionally, security costs and stringent FAA regulations put additional strain on airline operating costs without signs of relief. These issues hurt the entire airline industry; even low cost carriers like Jet Blue, Southwest, and Ryanair have been impacted by the storm.
As competition continues to drive down ticket prices, airlines struggle to trim fat. More fat means more fuel and airlines are looking for way to lighten their plans in an effort to reduce fuel costs. Many airlines have turned to baggage to solve their fuel cost problems. Two bag limits and excess baggage fees are becoming the norm for most airlines. In October 2005, Jet Blue tightened their baggage policy by reducing their checked bag quantity and size constraints. Last week Ryanair took it one step further with their controversial decision to charge for all checked baggage.
Airlines have taken away free meals and replaced them with overpriced á al carte snacks. They have automated much of their customer service functions with kiosk type solutions. They have raised ticket prices to cover rising fuel costs. Now, Delta and Northwest say that labor pay cuts are necessary to survive, but the pilots unions are holding their ground. Its hard to imagine what will happen next, but its sure to have an impact on travelers wallets.