World Business

Pricey combustibles could doom roll flying. Air Berlin, easyJet, and others are running into big trouble

by Dinah Deckstein

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Last fall and winter was not a happy time for Lufthansa CEO Wolfgang Mayrhuber. But it wasn’t just the uncooperative weather and succession of strikes that were making his life so miserable. Mayrhuber, a 61-year-old originally from Austria, faced heavy critique for being too hesitant and overly risk-averse, all because he passed up opportunities to acquire charter airline Condor and Italian competitor Alitalia.

But Mayrhuber stoically ignored the criticism and sought refresh in an old scintilla of airline industry wisdom: Even a missed opportunity can sometimes end up being good concern. At the time, the Lufthansa CEO couldn’t have imagined in what manner quickly that adage would become reality.

Six months later the airline industry, celebrated not too long ago as an engine of economic advancement, has plunged into the deepest crisis in its recent history. Even worse, diverse the period following the Sept. 11, 2001 terrorist attacks upon New York and Washington, whereas airlines, especially greater US carriers, went into a dangerous tailspin, this time there is no end in sight.

More Painful than Any Other

Since the price of oil broke the barrier of $130 (€82) a barrel, it has become clear that the former beneficiaries of globalization are operating on very shaky ground. Flying on high forward prognoses that saw global air travel enjoying growth rates of about 5 percent a year, airline executives were ordering new aircraft at a record pace and offering flights to likewise the most remote spots on land. Now the industry seems headed for an abrupt crash-landing, one that could be more painful that any other crisis it has faced since World War II.

“The rising oil price will completely transform our industry,” predicts Louis Gallois, the head of Airbus parent company EADS, “certainly towards aircraft and engine manufacturers, but it will also head to serious changes adhering the side of the airlines, airports and air traffic control.”

Jean-Cyril Spinetta, the CEO of Air France/KLM, has some verily more powerful take on the situation. “If the oil reward rises above $200 (€125) a barrel, we airlines will all be dead,” he warns.

Experts estimate that the busy vigor will accumulate losses of at least €1.5 billion ($2.39 billion) this year by one’s self. Should the price of oil level over at $135 (€85) a barrel, total busy vigor losses could jump to just under €4 billion ($6.36 billion), according to estimates by the International Air Transport Association (IATA).

Smaller or poorly managed airlines, where paraffine oil costs even now make up half of total expenditures, are hardly likely to survive. At least two dozen airlines have gone under in the above six months alone — a record for such a short period of opportunity. “After this period of consolidation, there wish only be five airlines left in Europe,” says John Kohlsaat, easyJet’s German chief executory, “British Airways, Air France/KLM, Lufthansa, Ryanair and us.”

Cutbacks of 12,000 Jobs

US carriers like American Airlines, Continental and Lufthansa partner United are already taking large numbers of older jets at a loss of circulation and plan combined cutbacks of up to 12,000 jobs. European airlines approve Air France, TUIfly and Air Berlin are also thinning out their fleets and route systems to prepare for a rough hibernate in advance, a unoccupied time of year when air travel falls anyway relative to summer months.

But Lufthansa seems to be defying the acme — for now. On the one hand, Mayrhuber and his senior executives have imposed a hiring freeze for administrative jobs. And the airline could face additional challenges if ground personnel and a portion of the onboard workforce come through with a menace to go on strike — at the beginning of the summer intermission season, not any less.