Airlines may price their way out of recession
Airlines are facing higher fuel costs. And, they are facing lower demand for each seat. This has lead industry group International Air Transport Association (IATA) to predict that the global airline industry will lose $9 billion this year.
One theory, espoused by some analysts is that the best way out of the mess is to cut capacity and raise prices. One is relatively easy. The other, probably not.
According toReuters, sharply cutting routes and flights should stabilize prices. If wishes were horses all the beggars would ride.
Consumer demand for flying could remain low for another year or more. Higher oil prices won't just hurt airlines; they will cut into consumer spending capacity and the profits at many businesses. The number of people flying could actually dive further.
Airlines are back to the place where they were a year ago, but demand is falling faster than it was then. The only two solutions that may be available if the trouble drags on are bankruptcies and mergers. Fortunately, the industry has plenty of experience with both.
Douglas A. McIntyre is an editor at 24/7 Wall St.