In recent weeks, airlines around the world have been reporting substantial losses, declaring bankruptcy or completely shutting down. So far the losses have been mostly of small airlines, but many of the large ones have started to thrash around for merger partners. At $3.71 a gallon, jet fuel is now the single largest expense an airline faces.
In 2000, the airlines fuel bill was $14 billion. It is now pushing $60 billion and climbing. Southwest, the most profitable carrier, recently announced that this year’s fuel bill will be $500 million more than last year and equal to 2007 profits. During the first quarter of 2008 American airlines lost $328 million; Delta lost $274 million; United lost $537 million; Continental $80 million; Northwest $191 million; and US Airways $236 million. Only Southwest Airlines, which did a better job of hedging its fuel than the others, made a profit.
It is clear we are going to see major changes in air travel shortly.
For some time now, airlines have been eliminating frills, raising prices, filling the planes and effecting whatever other economies come to mind. After the summer flying season ends next September, many airlines are planning to retire 5-10 percent of their least efficient aircraft, thereby reducing their flight schedules by a similar amount.
Knowledgeable observers are expressing doubts these moves will be enough. People are starting to talk about $200 oil which implies that airline fuel costs will double again. Newer aircraft are more efficient, but the improvements are nowhere near what is necessary to keep up with surging fuel costs and, as Continental Airlines concluded this week, there is not enough financial benefit in a merger to keep up with costs.
Airlines are continuing to raise fares — the average ticket is up 10 percent over last year — but at some price point the airlines will drive away discretionary travel and they will be left with only essential business and personal travel that is unlikely to fill many planes. On top of the fuel prices is the current economic downturn which is likely to start impacting discretionary travel before the year is out. In short, airplanes simply can’t make money while charging affordable fares at current, much less prospective, fuel prices. The era of 500 mph travel for most people is nearly over.
There is no obvious way out of this dilemma unless there is a major breakthrough in the efficiency of aircraft. Fares will continue to rise. Flights will be cut. Smaller cities will lose their air service. Shorter trips will be eliminated as being too expensive. More seats are likely to be squeezed on planes and one manufacturer is even pondering seat-less planes in which passengers are strapped to boards during the flight.
Ten or 15 years from now, air travel is likely to be significantly reduced; will be patronized by business travelers or the very wealthy; and will be limited to trans-oceanic or long-distance flights between major population centers.
Consolidation of the major airlines and the demise of the smaller regional carriers has already started. After a number of rounds of consolidation, we will be down to only a handful of national or multi-national airlines probably subsidized by governments on “national security” grounds.
While the demise of inexpensive discretionary air travel has ramifications for many industries, in the first instance tourism is likely to be hit the hardest.
Ignoring for the minute the likely effects of $4 or $5 gasoline in California this summer, Las Vegas reports that nearly half of its tourists arrive by air. To make matters worse, resort operators have recently spent billions upgrading their facilities to the $300 a night places that are less likely to attract drive up customers. The same pattern can be repeated at air-dependent tourist attractions all over the world.
There is still a remarkable amount of denial in the airline business. This week Airbus released a forecast showing that the number of large commercial aircraft will grow from 15,000 to 33,000 in the next 20 years and that the number of passengers will triple.
If there is to be a long-term future for air travel, it is unlikely to be with liquid fuel powered turbines driving heavier than air devices. The U.S. Air Force is currently embarked on a campaign to convince the Congress to buy it a multi-billion dollar facility to convert coal to jet fuel and a couple of airlines are busy demonstrating that their planes will run on biofuels.
While limited use of coal to liquid fuel or biofuels for aircraft may see limited use, neither of these replacements is likely to produce enough affordable fuel to keep Airbus’s 33,000 large transport jets in the air 20 years from now.
Over the longer run, the development of hydrogen powered aircraft might prove feasible or perhaps lighter-than-air dirigibles might be developed to the point where they can move people and goods efficiently over long distances. In any case, the day of the ubiquitous kerosene-powered jet transport which revolutionized travel for many of us in the second half of the 20th century is likely to be shorter than most realize.