When oil hits $200 a barrel…

Last Thursday, the price of oil topped $135 a barrel, causing havoc across the globe. The is double what it was at the same time last year and as a result, the travel industry may see even more airlines continue to fold this year.

Last week, Air France-KLM announced that rising fuel prices were significantly cutting into its operating profit, which was likely to drop by about a third this year.

All-business-class airline Silverjet failed to secure some important funding and as a result, suspended trading on its shares. Like other airlines, fuel costs are continuing to cause problems for Silverjet, despite the business class clientele.

Goldman Schas, an investment bank, predicted this week that oil prices would continue to rise, warning consumers and businesses alike to expect a barrel of oil to sell for as much as $200 in the next six months to two years.

Michael O’Leary, the CEO for budget airline Ryanair was asked if he thought $200 a barrel was likely. “Anything is possible,” he said. “But do I think it’s sustainable? No. Whatever the forces driving oil prices up, $150 per barrel looks more likely than $100 over the next few months.”

Already Ryanair, like other airlines, is struggling with the high fuel prices. “Clearly our profits would be massively impacted if oil hit $200 a barrel,” said O’Leary. “They already have been massively impacted. Our oil bill will double this year but we still expect to be profitable.”

According to O’Leary, only four airlines would be able to survive an economy where oil sold for $200 a barrel. Those airlines would be British Airways, Lufthansa, Air France and Ryanair.

“Such a scenario would be great for Ryanair as we would be one of the airlines that would still be in business,” said O’Leary.

“Clearly a lot of airlines would go bust if oil hit $200 a barrel. It would also mean the world would hit a recession. People would get more price sensitive so they would choose to fly with us.”

www.airfrance.co.uk