Fresh airline failures predicted following spike in oil prices

Nick Trend
Updated
There have been a remarkable 268 global airline failures since 2007, including nine so far this year and 11 in 2017 - This content is subject to copyright.
There have been a remarkable 268 global airline failures since 2007, including nine so far this year and 11 in 2017 - This content is subject to copyright.

The chief executive of EasyJet, Johan Lundgren, has predicted that high oil prices will lead to the collapse of more airlines. His comments come in the wake of the failure of Primera Air at the beginning of this month, and of Monarch late last year.

Speaking at the Travel Convention, taking place this week in Seville, Lundgren refused to name the airlines he was thinking of and didn’t specify a timescale, but he argued that the continuing and sustained increase in the cost of aviation fuel - which constitutes the single largest cost faced by most airlines - was making some carriers vulnerable to financial failure in what is an intensely competitive market.

Those which haven’t hedged against a rise in the cost of oil, he argued, and which don’t have the financial strength and resilience to ride out the current economic headwinds, will be vulnerable.

The cost of aviation fuel is directly linked to oil price, which has risen by nearly 50 per cent in the last 12 months.

He isn’t the first to warn about future airline failures. Earlier this year John Grant, an aviation analyst, argued that there were too many airlines in Europe. “The competitive environment has become increasingly challenging for many airlines, with many established legacy airlines launching low-cost long-haul services and the continual growth in services from airlines such as easyJet, Ryanair and Norwegian,” he told Telegraph Travel. “This has resulted in many mid-market carriers with relatively high cost bases being continually squeezed to a point of failure.”

Oil prices have risen sharply in the last year - Credit: businessinsider.com
Oil prices have risen sharply in the last year Credit: businessinsider.com

It’s a sobering reminder for consumers to make sure that they are protected against potential failures. The problem when scheduled airlines collapse is not just the disruption to passengers’ travel plans – they may also lose their money and risk being stranded abroad and having to pay for a new flight home.

Currently there is no automatic financial protection in such circumstances. The government ordered a review after the collapse of Monarch, but it has yet to report its findings. It is an issue which has long been highlighted by Telegraph Travel and Lundgren’s comments are another reason for the government to act urgently.

Lundgren was more positive about Brexit. He argued that it seemed “inconceivable” that politicians, either in the UK or Europe would want to put their electorate in a position where they were unable to travel or go on holiday. And though he said that they still have contingency plans for a no-deal scenario, he strongly believes that there will at least a bare-bones agreement in place which will enable airlines to keep flying between Britain and the EU at the end of March next year.

How to protect yourself against airline failure

According to the website www.protectmyholiday.com there have been a remarkable 268 global airline failures since 2007, including nine so far this year and 11 in 2017. So how can travellers protect themselves? 

  • Book your flight as part of a package holiday organised by a tour operator or travel agent which is licensed by the government’s Atol scheme.

  • Pay by credit card (for fares over £100). This should give you protection under Section 75 of the Consumer Credit Act 1974. It will refund your fare, but it will not repatriate you if you are stranded, however.

  • Buy a travel insurance policy which offers cover for “scheduled airline failure”  a few policies offer this, but sometimes charge an extra premium for the cover.

Check the CAA’s website for full details.