Due to deregulation in the early 2000s oil speculation has driven oil prices up even when demand has decreased. The way the system works is that buyers will place bids with sellers who agree to sell a certain amount of a commodity at a fixed price. Once the contract is set the future buyer will receive the commodity for the previously dictated price in the future, even if the price is different at the time the buyer receives the commodity.
The commodity for airlines that is volatile for their operation is fuel. Speculation makes it nearly impossible to make long-term plans for any airline. The Air Transport Association, along with numerous others in the industry, is pushing regulators to bring in limitations on the financial speculators. There is currently a bill in congress that would curb oil speculation and hopefully allow airlines to plan more accordingly.
If this bill is not passed then airlines and consumers alike will not be able to stay above water and make any profits. If this continues it will be detrimental to the US airline industry altogether. This legislation would not completely remove speculation however it would limit the amount that could be speculated from 45% to 20% of the market. This would be huge for all airlines in profit margins by drastically decreasing fuel costs.
The deregulation caused things to inflate drastically and that is easily seen by looking at the price for gas prices, which in 2008 were averaged at $1.56 a gallon and now average over $3.60 a gallon. Limitations on how much commodities can be speculated would put a slight strangle on the financial speculators, but would improve all other commodities that they are driving prices up for. In order for this to be set up there will have to be a tighter control on financial speculators and limiting them. If there are not currently people in place to do so then this will assist in job creation.
By decreasing the amount of speculation and helping airlines increase profits this will assist in job creation and job security. Airlines will be able to comfortably create more jobs or hire more people who have been laid off during the US economic recession. By this occurring it will strengthen the infrastructure on the US airline environment.
References Used:
McClatchy Newspapers
http://www.mcclatchydc.com/2011/08/17/121047/how-financial-speculation-in-oil.html
ALPA White Paper
http://www.alpa.org/publications/ALPA_White_Paper_Leveling_the_Playing_Field_June_2012/ALPA_White_Paper_Leveling_the_Playing_Field_June_2012.html#section1-5
Good start. Next time try to integrate your links more smoothly within the discussion.
ReplyDeleteI think if fuel prices stay high, the airlines will simply raise ticket prices. Is this detrimental to the industry? I think prices for certain things always increase, like a fact of life.
ReplyDeleteI think the problem is if ticket prices go up even more can people afford them? Eventually people will have to weigh the options of triple the time in the car but more than half the cost or be able to arrive at their destination faster but have the cost be astronomical. Plus, how likely is it that this bill will pass or not in order to help the cost?
ReplyDeleteI agree that we should limit speculation to the purchasers of a product. It should be about the efficient trade of a product and not a market to manipulate.
ReplyDeleteI agree that by decreasing the oil speculation this in turn will create more jobs in the aviation industry. If the airlines save money from fuel prices not increasing ticket prices then can be lowered, and this can create more affordable air travel therefore creating more business.
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