How Major Airlines are Coping with Rising Oil Prices
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Crude oil continues to trade above $106 per barrel since Iran cut off supply to Britain and France earlier this week. As the issues surrounding the Middle Eastern country's nuclear program escalates, the price of oil remains impacted.
Airline stocks plummeted this week due to intense volatility in oil prices. So far this week, JetBlue Airways (NASDAQ: JBLU) has been hit the hardest dropping almost 14 percent since last Friday. United Continental Holdings (NYSE: UAL) and Delta Airlines (NYSE: DAL) both lost more than 10 percent and Southwest Airlines (NYSE: LUV) dropped 6 percent this week.
The fall in stock prices has the potential to recover on positive economic developments or individual airlines making their business strategies more competitive.
Consumers should expect slight hikes in air fares as the companies attempt to control their profits. Significant hikes in fares are not likely as the nature of the airline industry is highly competitive.
JetBlue is one of the airlines that has already raised its fares by $5 in select Florida and west markets. "We have matched increases in the industry to remain competitive," said JetBlue's spokesperson Allison Steinberg."We continue to see healthy traffic... we have seen profit in 2011."
Steinberg also said that JetBlue operates fuel-efficient fleets with a single engine taxi, which helps keep their expenses low.
The cost of fuel accounts for approximately one-third of the airline’s overall expense. Fare hikes and fuel hedging are the most common practices to combat this additional expense. Additionally, many air carriers with older fleets are focusing on replacing their fleets with newer more fuel-efficient aircrafts.
"We have fuel efficient young aircrafts with an average age of 6.1 years," said Steinberg.
Better customer service, along with value enhancing features and products are expected since airlines want to remain attractive despite fare hikes.
For instance, Southwest Airline’s “No Change Fees” and “Bags Fly Free” policies greatly distinguish Southwest as the carrier of choice for budget-minded travelers. Southwest carries more U.S. passengers than any airline and heavily influences prices that competitors charge on many routes. With the addition of Atlanta earlier this month, Southwest has added Georgia as its 38th state to a route map of service now totaling 73 U.S. airports.
In an effort to stay competitive, United Airlines announced earlier this month that the company is upgrading its premium cabin services to offer customers new food and beverage options, additional choices in in-flight entertainment, and new amenity kits, pillows and blankets on long-haul international flights. Additionally, United is also rebranding its international long-haul premium-cabin services.
"We are keeping the products that our customers tell us they value the most," said Mark Bergsrud, United's senior vice president of marketing. "The rebranded cabins offer premium-cabin customers the highest levels of service, every time they fly."
Moreover, airlines are seen resorting to smarter technology to enhance their customer experience. JetBlue Airways introduced an iPhone application this month, along with a new and improved web and mobile sites.
Delta Airlines already has a “Fly Delta” application and prides itself for providing more than 550 Wi-Fi-equipped mainline aircrafts. By this summer, Delta plans on having more than 800 Delta aircrafts to be equipped with in-flight Wi-Fi service.
As the airlines are coping with rising oil prices, consumers can look forward to a better sky experience. The airline industry went through a major turmoil in 2008 when oil prices were over $140 per barrel. Current oil prices, though high, remain well below the 2008 level.
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