Smaller airlines unlikely to survive high oil prices

By John Bowker - Analysis

LONDON (Reuters) - A host of smaller European airlines are likely to go bankrupt in coming months if the oil price does not drop significantly below current levels of $130 a barrel.

Faced with the unprecedentedly high cost of fuel, airlines will have to hedge against the oil price and cut unprofitable flights and routes to help them stay in the air.

Pressure on airline profit margins will be exacerbated by a slowdown in demand from consumers, as well.

Short-haul weekend breaks or second holidays are expected to be high up the list of cost cuts as household bills are inflated by rising petrol, utility and food prices.

Overall, 24 airlines have gone bust around the world this year and just under half were based in Europe, according to the International Air Transport Association (IATA).

The transatlantic business class-only airline model has been wiped out.

Britain's Silverjet was forced to call in the administrators at the end of last month due to a lack of funds, following the demise of rivals MAXjet and Eos Airlines.

Now the regular and low-cost airline models are also under threat as profits plunge.