The sound of lowering gas prices for airlines may sound interesting to those who want to pay lower fares on business travel, but what does this really mean for the business travel industry?
Can Lower Oil Prices Negatively Affect the World?
While at first glance, the idea of lower gas prices may seem attractive, the reality of it goes much deeper for the business travel industry. While the drop may be good in a way for the environment with companies and countries seeking better ways to use energy that don’t hurt the planet, the lowering oil prices could negatively affect the world in other ways, such as:
Oil businesses will take care of themselves in an oil price drop as opposed to providing lower costs to consumers. It’s a sad but truth that the drop-in oil prices cause fuel surcharges and takes time for consumers to receive any benefits-if any-from it.
Hefty debts may happen when lowering oil prices happen due to other products, such as food, becoming cheaper. While this may seem good on the outside to consumers, the effect on businesses is one of deflation, which in end results in debt defaults.
The drop-in oil prices cause consequences all over the world affecting a number of countries. Take, for example, a country that is dependent on oil or gas company that has hired its government for a profitable project, but with the decrease in oil prices they pull out from the deal and decide to cancel it altogether. This type of scenario can then cause economic repercussions that reach even beyond the country’s borders.
Low Oil Prices and the Airline Industry
A big consumer of oil is the airline industry. With the ever-present need for jet fuel, the airline industry cares about oil prices and how it affects them. Would the lower price mean something good for the industry or does it have unwanted consequences?
While a slight drop in prices could benefit airlines by enabling them to provide more flights at a very low cost to the airline. The problem arises when the prices lower significantly.
One of the ways that the airline industry is negatively affected is when it comes to new aircrafts. While newer aircrafts promised reduction of fuel usage, financing costs are much higher. This scenario results in many airlines using their older airplanes with new airplanes already ordered.
Why is this bad? The reason is that although new airplanes are more fuel efficient the cost of owning them is much higher and this translates into higher costs for airlines. Many airlines thought high oil prices would remain forever and rushed into purchasing the fuel-efficient aircrafts.