Why are European airlines making money?

by Charlie Leocha on May 30, 2008

While U.S. airlines are losing money hand over fist — despite predictions to the contrary — European carriers like Lufthansa, Swiss, British Airways and Air France/KLM are raking in the dough. What’s up with that?

European airlines have similar costs as far as personnel, aircraft, airport slots, taxes and food service go. However, the shift in the exchange rate has provided Europe’s airlines with a windfall when it comes to paying for jet fuel since oil is priced in U.S. Dollars.

Since 2001, the price of oil has increased by 364% in U.S. Dollars. But European airlines paying for their fuel in Euros have only seen a 246% climb in their fuel costs because of the slide of the U.S. Dollar against the Euro.

Another way to look at the current situation is that European airlines paying in Euros are effectively getting about a 33% discount because of the increased strength of their currency since 2001.

If U.S. airlines were saving a third on their fuel costs, they would be raking in billions in profits as well.

Though this is of no comfort at the moment, eventually, the exchange rates will readjust, as they always have, and the price of oil will drop again back from the stratosphere as demands softens and supply grows. I hope.

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