Fuel prices have a profound effect on the airline industry. Much of an airline's pricing and cost structure is based on fuel being available at a certain price. If the price changes, airlines must make drastic adjustments.
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The drastic increase in oil prices in the early to mid-2000s devastated airline profits. To generate extra revenue, airlines developed fees for previously free items such as checked bags, blankets and food.
Reduced Flight Schedules
Rising fuel prices caused airlines to decrease the number of flights on its schedules to conserve fuel and raise the "load factor," or the number of paying passengers per available seat.
Higher Ticket Prices
An increase in fuel prices causes an airline's operating costs to skyrocket. To compensate, airlines raise ticket prices to generate more revenue.
Despite the reduction in costs by scaling back flights and the revenue generated by increasing prices and fees, airlines still saw record losses during the early to mid-2000s as a result of rising fuel prices.
Effects of Lower Fuel Prices
Fuel prices have dropped dramatically as a result of the global recession of the late 2000s and early 2010s. Despite the recession, many airlines have returned to profitability, in large part due to cheaper fuel prices. Despite the decrease in fuel costs, airlines have maintained their fees on previously free items and reduced flight schedules.
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