Peak Oil

The End of Cheap Air Travel

By Ryan McGreal
Published June 12, 2008

In late May, American Airlines announced that they were cutting 11 to 12 percent of domestic flight capaciy and adding surcharges for luggage at $15 for the first item in addition to $25 for a second bag, all in an attempt to stem their losses from historically high oil prices.

Today, United Airlines announced that they're following American's lead with the $15 surcharge for a first bag amid seat capacity cuts and job losses.

"With record-breaking fuel prices, we must pursue new revenue opportunities while continuing to offer competitive fares by tailoring our products and services around what our customers value most and are willing to pay for," said John Tague, United's chief operating officer.

US Airways believes the US airline industry as a whole will cut its seat capacity by nine percent in the fourth quarter of 2008, with more cuts to come in 2009.

The International Air Transport Association (IATA) reported yesterday that oil prices are leading to an industry-wide $2.3 billion loss for this year.

That projection is based on $106.50 per barrel of oil. Oil is trading right now for over $136 per barrel.

Two dozen airlines are already filing for bankruptcy. IATA chairman Fernando Pinto says, "Many more will not survive."

IATA CEO Giovanni Bisignani cast the stakes in even sharper relief:

Skyrocketing oil prices are changing everything. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined.

As sustained high, volatile oil prices persist, expect more cutbacks in service, more price increases and surcharges, more consolidation - like the mammoth merger of Delta Air Lines Inc. and Northwest Airlines Corp. - and more bankruptcies.

Industries based around cheap air transport might want to rethink their business models. As the Telegraph (UK) reported last week, the era of cheap air transport is over.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By adrian (registered) | Posted June 13, 2008 at 10:26:16

You beat me to this blog post. I've been thinking about precisely this issue over the past couple of weeks.

This is a major crisis in the airline industry that seems to be making notably little impact on establishment mindset towards the Aerotropolis, in a way that is strongly reminiscent of the debate on Red Hill.

Check out these bits and pieces from various articles I've read in the last while (I'd link to these articles but they're not all open to the public any more):


Continental Airlines Inc. said Thursday it is cutting 3,000 jobs and reducing capacity in the fourth quarter by 11 per cent, citing record fuel costs that have pushed the airline industry into a “crisis.” The company also said Chairman and Chief Executive Lawrence Kellner and President Jeff Smisek will not take salaries or incentive pay for the rest of the year.


With the price of gas approaching $4 a gallon, more commuters are abandoning their cars and taking the train or bus instead.

Mass transit ridership was up 8 percent in Denver in the first three months of the year compared with last year, despite a fare increase in January and a slowing economy.

Mass transit systems around the country are seeing standing-room-only crowds on bus lines where seats were once easy to come by. Parking lots at many bus and light rail stations are suddenly overflowing, with commuters in some towns risking a ticket or tow by parking on nearby grassy areas and in vacant lots.


Fuel costs will hurt demand, Air Canada warns

Air Canada is making adjustments to cope with record high fuel costs that are expected to put a dent in demand for air travel in the second half of the year, the airline's chief executive officer says.

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By Bee (anonymous) | Posted June 13, 2008 at 19:26:10

We'd better get this aerotropolis built before the whole thing collapses. Look on the bright side, think of how many warehouses you could build on the runways.

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By TheGreenHornet (anonymous) | Posted June 14, 2008 at 12:50:03

It's getting bad out there. Go sign the gas prices petition supporting S.2958

www.AmericansForJobsAndEnergy.org/

If all this bad news has not got your attention yet, it should. Our economy is unraveling like a cheap sweater over these fuel prices. S.2958 is a broad Energy plan that includes accessing 10 billion barrels in ANWR, opening up our 800 billion barrels of oil shale, jump starting CTL, advanced batteries for electric cars, etc. We need this now. The way things are going the jobs this Act will supply will be as important as the energy, with so many jobs being lost right now.

Airlines jobs are important, all our jobs are. When fewer people travel cities and towns that rely on tourist dollars will start to feel the pain. Hotels will start laying off, car rental firms, restaurants, etc., etc. This stuff scares me. I'm 40 and have never seen news like this.

The Green Hornet

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By David (anonymous) | Posted June 18, 2008 at 10:39:34

Contrasted against future scenarios, such as Kunstler's World Made By Hand, the airlines are just a hanger-on from the previous era of cheap oil, and it will have to change drastically. We will probably see the US airlines industry being picked-up by the government, like the rest of the world, to keep it running. But it will be used less and less as people's orbits get smaller and the world gets very large again.

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By highwater (registered) | Posted June 18, 2008 at 11:10:10

Uh oh. The Aerotropolis proponents have lost Graeme MacKay.

www.thespec.com/Opinions/article/388294

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By Sage (anonymous) | Posted June 19, 2008 at 09:24:25

The Spectator carried a piece today about the phenomenal year the airport had in 2007 citing profits, investment and royalties as well as expansion plans.

Any comments? before I weigh in!

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By Ryan (registered) - website | Posted June 19, 2008 at 09:54:29

The Spec also carried a report that Air Canada is canceling its Jazz service to Hamilton because of high fuel costs.

In his 2006 report to the city, Richard Gilbert projected a more than 50 percent chance that oil prices would quadruple by 2018, a view shared by most oil industry analysts, geologists and economists.

Now, it looks like some of the recent price increase is related to speculation in the futures market, but the underlying tight supply situation is real. Even now, a major event that affects production or refining capacity - missile strikes against Iran, a hurricane in the Gulf, etc. - could easily push oil prices above $200 per barrel.

This year, two dozen airlines will go bankrupt and most of the rest will lose money. All the major North American carriers are already cutting back their carrying capacity, raising prices, and laying off employees with oil trading in the $130/barrel range.

Now think ahead ten, fifteen years - can you really argue that it makes sense to base our long-term economic development plans around an industry that its own analysts warn will be radically, even unrecognizably, different than they are today?

The Hemson land use study that recommended the AEGD didn't even consider future energy prices - it was out of scope, so they just assumed that the future prices would be the same as the current prices when they wrote it in 2006. Only two years later, that assumption is already proving naive.

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By Sage (anonymous) | Posted June 19, 2008 at 23:34:25

Gilbert also suggested that Hamilton burn waste to produce energy. Now this sounds like a good idea. What say the environmentalists to that?

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By Ryan (registered) - website | Posted June 20, 2008 at 00:04:11

Gilbert set out what he considered to be necessary conditions before Hamilton should accept an energy from waste facility:

  1. All the waste must come in via shipping and rail, not via trucks. All the trucks bringing in the waste would actually produce more pollution than would burning it.

  2. The facility must release exhaust that is cleaner than the ambient air at least half the time. In other words, the facility must be a net air purifier.

These conditions set the bar pretty high - certainly the current Liberty Energy proposal doesn't meet them.

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By Sage (anonymous) | Posted June 20, 2008 at 13:42:11

Liberty Energy? Is this the group that received a supportive nod from Sludgewatch in this week's paper?

Where is there some info on them? I understand they want to create energy which is what we are looking for as a society. I read Gilbert's "Electric City" and concur with a lot of what he says. It is silent on developing airport lands, not necessarily for airport uses; and wants us to return to our roots as an electric city by burning trash and other things to create alternative energy and get us away from carbon fuels.

Of course there need to be safeguards, but Europe, I understand, and Japan, have found a way. Which means that in the next 100 years, Canada may too!

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