Fragile Airlines
Airlines worldwide are struggling with many challenges from accidents, terrorism to fluctuating economies with the Canadian airlines, and West Jet airlines being no exceptions. Fuel prices are making things even much harder. There has been a sporadic change in the prices of crude oil, and this has had a direct effect on the prices of jet fuel and air tickets. The world crude oil prices have increased over time to reach a current high price of about $84 per barrel. The increase in the avgas prices hurts the air ticket prices for both the Canadian Airlines and the West Jet airlines. The airlines have revised their traveling ticket prices upwards over time as indicated in fig. 1 below.
These changes have left both the Canadian Airlines and Wets Jet airlines struggling to increase their consumer confidence that could only be achieved when air tickets are not subjected to unpredictable upward changes. Unfortunately, the airlines have no control over oil prices. The fuel price has a direct effect on the cost of the flights, which must be transferred to the consumer. This, therefore, means that the airlines have no option but to adjust their air tickets upwards and manage consumer confidence using other incentives if they are to stay in business.
Prices of air tickets are some of the factors that Canadian and West Jet service consumers consider. An increase in air tickets by both lines would result in decreases in the purchase of airline services despite product differentiation. This is due to the reduction in the confidence of consumers in the services of the airlines as indicated by the above Fig. 2.
The increase in air tickets has affected the performance of both Canadian and West Jet Airlines. The firms reported a reduction in their profits and net income, especially from travel activities. The decline in the profits of the firms could be explained by the increase in oil prices and a decline in consumer confidence. The relationship between the profitability of the airlines and the confidence is illustrated in fig. 3 below.
Air Canada must therefore do balancing to maintain its profits and at the same time, increase or at least maintain its consumers’ confidence. West Jet, which serves the domestic market within the U.S., is even at a greater risk. With the weakening of the U.S. and European economies, people are turning to other means of transport that they consider cheap. This shrinking market becomes very demanding as they have other alternative means of transport.
From the above future, it is evident that an increase in the global price of Avgas has negative implications for the airline industry as it reduces profits. To begin with, the high fuel prices pile pressure on Canadian and West Jet airlines to increase their air tickets that would, later on, affect the confidence of consumers in the airlines negatively. The outcome is a reduction in the profits of both firms as consumers look for alternative means of transportation. In conclusion, airlines such as the Canadian and West Jet airlines are fragile because any slight increase in avgas leads to reduced consumer confidence following increased air ticket prices. The airline industry is very risky and the firms should reconsider their operations in the industry.