Originally Posted by
gloopy
Maybe, however it seems (some of) the lessons from the recent past have been completely lost on the B-School/analcyst crowd. Higher fuel doesn't always equal the end of hiring or growth. In fact, super cheap fuel, which is great for a while, eventually guarantees a mass influx of ponzi scheme start ups and irresponsible growth across the board. A lot of bacon was saved in the not too distant past by higher fuel costs which significantly narrow the gap between the cut throat ULCC's and the legacies (and even the regular LCC's) above them.
Bye bye Skybus was just one example. If oil was stuck in the uber cheap 30's they'd probably still be around with 100-300 more plane's worth of capacity barfed all over the system, and the higher paying airlines would likely have yielded to them. Even among legacies, higher fuel helps reign in knee jerk ASM growth. Periodic spikes are actually very beneficial all around.
The concept above is correct however it applies to overall profit margin not fuel prices. I posted on here several years ago that we would never see 30% profit sharing checks because the profit margin to generate that check would be so high that capacity would quickly flow into the markets driving profits back down. The forum quickly told me 30% was a lock.
Higher fuel prices certainly drive profit margin down since airlines normally can’t recover more than a portion of the increase by raising fares and tie into the the margin discussion.
Sky bus is a poor example. They had no capital from the day they started. Take a look a JetBlue, Allegiant, Spirit and Frontier. Look at their size then and now. Check out their order book also.
In the end however pilot hiring over the last 30 years has been closely tied to fuel prices. Sharp prices increases curtailed hiring.