Why Are Airlines Going Bust?

Recent years have shown that it is not just Full-Service carriers who are struggling in a competitive airline market, low-cost carriers have also felt the pinch. Within the last 24 months, airlines of a large stature have been seen to bring in the administrators, with large names such as Jet Airways, Primera and Air Berlin. But why have these organisations, with top quality leadership, been going bust?

Rising Fuel Costs

In early 2016, the cost of a barrel of oil was as low as $40, today the figure stands closer to $60. Fuel takes up 35% of any airlines cost, as the cost of the barrel rises, so does this figure.

Increased Competition

Europe is a highly competitive market, arguably the most competitive market globally. Large names such as Air Berlin, Monarch, Primera no long serve European consumers. Domestically, the fare slashing Ryanair, as well as other low-cost competition, have made it difficult for any airline to operate in with one-way fares starting from £9.99 ($12.60), a model which see’s large parts of their revenue coming from ancillary forms. According to CAPA, low-cost carriers account for 40.4% of the seats filled in Europe. The European market is currently seeing the supply of seats increasing much faster than the demand, also forcing carriers to cut their prices.

Lack of Cost Control

Fleet renewal is an inevitable part of working in an airline. As aircrafts get older, they require more time and attention, which ultimately demands a greater budget to meet demands. To meet these fixed and viable cost, the expense is determined by agreed contracts with suppliers, time spent on the aircraft and the work force which is dependant on the airline’s location. Having a technical department based out of Spain would be much cheaper than Norway. To build on this, operating a A320NEO vs a A320 would help reduce the costs day to day.

Politics

Brexit is yet to have a major impact on UK and EU based airlines, but it is an area we can be sure they are forward planning for. Tourist destinations such as Egypt, Turkey and Tunisia facing internal issues reduced the amount of air traffic coming in and ultimately the number of holiday makers willing to travel to these destinations. It is undoubted that airlines within the GCC region would have been affected by issues between India and Pakistan.