Have we reached the end of the low cost flying boom?

Its bank holiday weekend and ABTA estimate that almost 2 million people will be leaving the UK for an early summer break this weekend. But as they board their aircraft, the soaring price of oil may mean that this weekend’s great getaway is one of the last boom periods for the leisure flying market. Willie Walsh, CEO of British Airways certainly thinks so.

The newspapers are reporting today that Willie Walsh has declared the era of cheap flights over as the price of oil hit a record high for the third day running.

This time last year, a barrel of oil was priced at about $65. Now the price has doubled to over $130. This rapid increase in costs, coupled with the deteriorating global economic environment, leads Walsh to conclude that many existing competitors in the airline industry will struggle to survive.

Fuel accounts for around a third of airline budgets and its escalating price is forcing airlines to pass on the cost to consumers because they are running out of overheads to slash in their own businesses.

American Airlines and BA, two key operators on transatlantic routes, have already cut back their capacity for later in 2008. In order to survive, Walsh believes that airlines will seek to recover extra fuel costs through customer surcharges and additonal costs for baggage. Customers weaned on low prices offered by the likes of Ryanair and Easyjet may decide that the honeymoon is over, and cut back their travelling activities.

An interesting quote from Walsh in The Guardian:

“This is about whether airlines can survive. If you look at a lot of the low-cost carriers around Europe, a lot of them have not been able to make money when oil was $80 per barrel,”.