Just remember, the smaller we are... the easier we're acquired.

 

Depends on if they take the long-term or short-term view. Also depends on how quickly the global oil industry can ramp up... OPEC has extra capacity, and even North America has some idle capacity (previously developed reserves with high production cost).

 

Alaska usually takes the knee jerk reaction, and then is forced to sort it out later when it doesn’t work out

 

Talking heads saying oil could go as high as $300/barrel in the worst case scenario...

 

Doesn't really matter from an airline perspective. The airlines can’t operate at sustained $200 per barrel.

 

I'm curious why this is an absolute figure for you. What experience do you have that gives you such certainty?

I'm not doubting it, I'm just curious how you can be so certain about it.

 

Its not absolute, in fact my impression is the airlines will struggle to exist in their present form at cost point less than $200, again assuming this isn’t a transient situation. Oil is at 128 today, Alaska is already pulling back capacity. I would expect that hiring will stop, a good chance the 5-2022 bid cancels and a reduction bid follows, that’s just for starters.
The airline bailouts during Covid saved a bloodbath of furloughs, my opinion of what is coming is going to be far worse, but that’s just my opinion. If oil reaches $200-300 in addition to the runaway inflation we currently face, the avg family will not have discretionary income to travel.
I hope I’m totally wrong, this is simply what I believe is likely to happen.

 

20-30% of airline costs are fuel. Call it 25% for this example.

If oil doubles, then the airline's variable costs increase by 25%.

Can they raise ticket prices by 25%? Sure, they've been all over the map lately and planes are still full.

That large of a bump would scare away some pax for sure. Also other economic problems related to high oil will scare off some more pax.

But over time, could the pax and industry adapt to $200 oil? Sure. Also $200/bbl today is about $150/bbl in 2008. The talking heads seem to conveniently forget inflation when they screech "Highest Oil Ever!". Oil settled at around $120/bbl today.

But it's reasonable to assume that oil would not stay anywhere near $200... prices above $100 will drive exploration and production in places and with technology that's not economically viable at $60. Any airline with hedges can probably ride it out for a while, and might even thrive if their competitors didn't hedge as much (or at all in some cAAses). That's what SWA did last time.

 

Not only that, but we beat our chests over having the "highest margins in the industry."

This is one point where those high margins should work in our favor.
Also, it's a good thing we're a credit card company and not an airline, otherwise we'd be in real trouble.

 

I think you need to calibrate your panic scale. You should be at *mildly concerned* at this stage.

You're taking 2 weeks of high fuel prices and extrapolating it to the total collapse of the airline.
That seems a tad premature to me.