Fuel Prices – The Airline Industry’s Toughest Headwind
The airline industry has made tremendous strides recently, after surging fuel prices, highly restrictive credit markets, and a debilitating recession pushed all carriers to the brink just three years ago.
Subsequently, the airline industry smartly adopted an aggressive pricing scheme, and the reassuring upturn led the sector to impressive profitability during 2010.
Current share prices indicate investors may now have a more constructive view toward both the airline industry's attractiveness, and the larger airlines' ability to compete more effectively going forward.
The labor-intensive nature of the industry combined with high union participation has caused payroll-related expenses to remain the largest expense item for the airline industry.
However, while labor costs have consistently fallen in nominal terms as the airline industry has removed pensions and seen its labor forces contract, fuel expenses have been extremely volatile due to geopolitical shocks.