Oil price biggest challenge for airlines - Breaking News - Business - Breaking News

Rising oil prices are the biggest challenge facing the aviation industry, according to an independent financial adviser.
Fat Prophets said that higher jet fuel prices will result in more expensive air travel and fewer passengers.
And airlines must face the changing industry structure or face extinction.
Fat Prophets said that lower oil prices between 1980 and 1997 had resulted in a decline in the real price of tickets which had in turn caused a rise in passenger demand.
"After peaking in 1980, the price of oil trended downwards hitting a low point of less than $US10 a barrel in the late 1990s," the firm said in a research report.
"Accompanying this trend has been the falling cost of airline tickets, which have declined significantly in real terms over the past 25 years."
However, the rise in oil prices over recent years had forced airlines to pass on costs to passengers through fuel surcharges.
"The impact of the higher oil price is becoming more evident, with airline ticket prices now starting to increase dramatically," Fat Prophets said.
"With crude oil prices up over 130 per cent over the past three years, the global industry has been feeling the squeeze."
Fat Prophets said demand had remained strong despite the rise in fares, but was likely to decline at some point.
"We believe the airline industry is perched on the edge of a deep abyss, and that some major structural changes are in store for the future," Fat Prophets said.
"In our view the clock is ticking for the global airline industry."
Fat Prophets said some airlines would meet their demise as a result of the changes.
"Should our prediction for an oil price north of $US100 (a barrel) prove correct, we believe the airlines will respond with higher ticket prices and reduced capacity," it said.
"A Darwinian outcome will be the result, with only the fittest surviving in our opinion."
Higher fuel costs are having the biggest impact on low cost airlines but the pressures were not limited to budget carriers, Fat Prophets said.
© 2006 AAP