The End of Affordable Air Travel?

[surfdude]

I thought it may be interesting to hear peoples views on this topic. I have been wondering how much longer air travel will be affordable. I live in HK and the price of air tickets has gone up steeply and I don't see this about to change anytime soon. The tickets I have bought to go away this summer on Continental are about 35% more expensive than they were 2 years ago.

 

When our local budget long haul carrier Oasis went suddenly bankrupt last year I took this to be a bellweather of bad tidings ahead for the air industry. Airlines are having to cope with huge spikes in fuel charges which are in turn passed onto the consumer. This article outlines the situation:

 

From the Earth Times, Wed, 28 May 2008

Hong Kong - Nearly 50 airlines were Wednesday preparing to add hefty surcharges to flights out of Hong Kong from next week after applications for bigger fuel surcharges by 34 more airlines were approved. The move by airlines including British Airways, Qantas, Air France and China Airlines follows successful applications by 13 other airlines earlier this week to raise fuel surcharges by up to 37 per cent.

 

The territory's Civil Aviation Department approved the increased surcharges, the biggest increases ever seen in the city of 6.9 million, because of the sharp rises in oil prices.

Flights out of Hong Kong will from next Monday cost an average 52 US dollars more for a short haul flight and 133 US dollars more for a long haul flight. The increased surcharges have initially been approved until July 31.

Tony Tyler, chief executive of Hong Kong's flagship airline Cathay Pacific which was among the first airlines to apply for the increase, said earlier this week fuel prices rises were "posing an enormous challenge to the aviation industry."

 

Jet fuel prices now accounted for 40 per cent of Cathay Pacific's net operating costs compared with just 30 per cent in 2007, he said. The cost of flying a jumbo jet to London and back from Hong Kong now costs 360,000 US dollars in fuel alone.

__________________

 

US$360,000 in fuel for return flights to London! This doesn't include their other operating costs. With about 350 seats on a Jumbo how much money are they making? London to HK is a highly competitive route and you can often get seat sales for less than US$600.

 

I wouldn't be surprised if carriers start dropping routes that aren't profitable and bring steep increases in fares. Cathay has been promoting its new flash interiors recently and has started to receive the more fuel efficent 747-400ER. So they are trying to offer a better product and save on costs but it is going to cost the consumer more to use their service.

 

I think it will go particulary bad for carriers in the US. However, I do see the potential for growth in China's market and I remember reading that the government has made it easier for mainlanders to obtain passports and get visas for travel.

[drbubb]

I'm about to test this...

 

Roundtrip travel between HK and London was Pds.450 in Nov. 2007

 

Today??

[wren]

Airlines are grounding planes due to fuel costs.

In the US, American Airlines is to retire 75 aircraft on domestic routes and introduce a charge for checked-in luggage.

 

"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak US economy," explained parent company chairman and chief executive Gerard Arpey.

 

Australian carrier Qantas is to cancel five per cent of available seat kilometres from its schedule, which is roughly equivalent to grounding six aircraft.

 

Air New Zealand has announced it will fly smaller planes on long-haul services, including Auckland to London, in order to make the necessary savings on fuel.

http://www.travelbite.co.uk/news/travel-ad...036;1224754.htm

 

The next few years will see the failure or downsizing of many airlines.

 

In the end it'll be like the '50s when only senior executives and the rich fly much.

[TinBrick]

It's also worth bearing in mind that aviation fuel is in general exempt from tax and excise duty. This means, for example, if one flies from Paris to Madrid the fuel is tax-free, but not if one drives.

 

There's a large body of opinion that this tax-break is unsustainable both in general equity and for environmental reasons. Even those well-known tree-huggers, the UK's Conservative Party, have proposed an environmental tax on aviation fuel:

 

http://www.guardian.co.uk/society/2005/mar...airlineindustry

[surfdude]

Airlines are grounding planes due to fuel costs.

 

The next few years will see the failure or downsizing of many airlines.

 

In the end it'll be like the '50s when only senior executives and the rich fly much.

 

If airlines are downsizing and moving towards using smaller planes for Long-haul and grounding Jumbos ( I liken this to switching to an economy car after using an SUV) with their 4 fuel hungry Rolls Royce engines what is going to happen to the super jumbo A380s that are slowly being delivered to Singapore Airlines, Emirates...

 

Airbus has already lost alot of money on production and delivery delays. If airlines move away from the Mass Air Transit business strategy and the A380 becomes a white elephant what effect will this have on the viability of Airbus?

[drbubb]

If airlines are downsizing and moving towards using smaller planes for Long-haul and grounding Jumbos ( I liken this to switching to an economy car after using an SUV) with their 4 fuel hungry Rolls Royce engines what is going to happen to the super jumbo A380s that are slowly being delivered to Singapore Airlines, Emirates...

 

Higher oil prices will drive down the price of fuel-inefficient aircraft.

But I do not see them being scrapped just yet. They may get parked in the desert for a while,

on their way to getting cannibalised for parts

 

[jerpy]

Higher oil prices will drive down the price of fuel-inefficient aircraft.

But I do not see them being scrapped just yet. They may get parked in the desert for a while,

on their way to getting cannibalised for parts

 

Now where's that picture of all those planes out to pasture in the American desert! The image is thought provoking.

[harold bishop]

Aero engines, like internal combustion engines are pretty much at the limit of their efficiencies. A 1% improvement in fuel efficiency in jet engines is now considered to be a breakthrough. The economies come from flying bigger planes and filling the seats.

 

The Ryan Air boss is bullish on the ability of the low cost carriers to survive due to their operating efficiencies. However, I'm not sure and think they may be more vulnerable than the likes of BA, Emirates etc. as the low cost passengers will vanish if fares rise.

 

By the way, Silverjet has stopped flying

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

[zceb90]

The Ryan Air boss is bullish on the ability of the low cost carriers to survive due to their operating efficiencies. However, I'm not sure and think they may be more vulnerable than the likes of BA, Emirates etc. as the low cost passengers will vanish if fares rise.

I believe Ryan Air are wrong on 2 counts:

1) Their business plan is primarily to attract leisure travel which is exactly the type of discretionary activity which will be impacted in an enforced reduction of consumer spending due to rising food and energy costs (which are non discretionary). Many of their customers won't feel so wealthy as house prices head further down and borrowing becomes harder and more costly.

2) Ryan Air target short / medium haul routes (one might say they are not prepared to have their staff stay in hotels overnight hence no long haul routes). Shorter routes in Europe which RA primarily focus on often have rail alternatives which will become more competitive as aviation costs rise (rail being far more energy efficient and able to use electric traction powered by renewables).

 

In an interview this week on Radio 4 it was stated that UK tourism trade deficit is currently £18bn pa. Total UK trade deficit is at least £50bn pa and rising fast due in no small part to ongoing steep declines in North Sea fossil fuel extraction having to be met by increased imports. There will come a time, soon imo, where the trade deficit becomes a really key issue at which point I suspect Gov't will start to think twice about facilitating large numbers of cheap flights taking vast amounts of currency out of the UK.

[drbubb]

There will come a time, soon imo, where the trade deficit becomes a really key issue at which point I suspect Gov't will start to think twice about facilitating large numbers of cheap flights taking vast amounts of currency out of the UK.

 

a rise in the cost of "cheap" flights will help to kill off any remaining

overseas "hotspots" (like Bulgaria etc), that were once the favorites of

British BTL speculators

[jerpy]

Aero engines, like internal combustion engines are pretty much at the limit of their efficiencies. A 1% improvement in fuel efficiency in jet engines is now considered to be a breakthrough. The economies come from flying bigger planes and filling the seats.

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

 

On that note GTE is flying(pardon the pun) with funding in place, now where did i read someone bulling up their prospects this week. (Moneyweek i think).

[zceb90]

Daily Express article today: Fuel Adds £872 to Holiday Flights. Having switched their headlines from motor fuel taxation DE is now concerned that a family of 4 has to pay £872 in fuel surcharges for a BA flight to Florida. DE is not alone - when I was in newsagent today I saw another newspaper (don't recall which) thought it 'harsh' that Orlando flights were incurring the top rate of BA's surcharges (which apply to flights > 9hrs) when it was just 15 minutes over the 9hrs.

 

One of the comments posted after DE article even suggested 'ring fencing' UK N Sea oil so that flights (and presumably car drivers) are 'immune to world prices and speculation'. Well I've got news for this person - UK NS oil output is now around 25% short of self sufficiency and even Gov't ministers now admit 'there's no way to reverse output declines., only slow them down somewhat.' In other words if UK does not import oil many Orlando flights wouldn't operate from UK airports!

 

The key point the Daily Express and their readers are missing is that 'their grandparents did not take their families on round trips to Florida' and I'm virtually certain that their grandchildren won't either. The abundance of cheap flights will prove a very short term event which coincided with the summit of the fossil fuel age in terms of affordability and abundance of such fuels. Future trends have to be towards taking vacations much nearer home, for example it's now a short rail trip to Disneyland Paris vs a long flight to its Florida equivalent.

 

Big changes lie ahead for aviation as fuel avalability and its affordability declines. The industry will start to revert back to what it was like in the 1950's when only the relatively wealthy could afford to fly regularly. I would also expect focus of the industry to switch to long haul flights where there are few alternatives and when fuel consumption per km is less than short / medium haul flights. Landing and take off uses a disproportionate of fuel for these shorter flights and I'd expect to see a continual substitution by rail and ferry combined with less overall travel. Btw has anyone told Dept of Transport yet as they are still intent on constructing lots of extra runways?

[drbubb]

Big changes lie ahead for aviation as fuel avalability and its affordability declines. The industry will start to revert back to what it was like in the 1950's when only the relatively wealthy could afford to fly regularly. I would also expect focus of the industry to switch to long haul flights where there are few alternatives and when fuel consumption per km is less than short / medium haul flights. Landing and take off uses a disproportionate of fuel for these shorter flights and I'd expect to see a continual substitution by rail and ferry combined with less overall travel. Btw has anyone told Dept of Transport yet as they are still intent on constructing lots of extra runways?

 

Oil used to be 25-30% of an airline's costs.

Now it is over half

 

[surfdude]

An article in Today's Standard (HK) indictes global airlines are expecting hard times and want to put pressure on governments and airport authorities to give them a better deal. We may see some airline mergers in the future but not sure how this will play out as Singapore Airlines had trouble merging with China Eastern a few months ago. In a separate article I noticed that China Eastern is cutting more than 20 of its unprofitable long haul flights including to LA, Singapore and Paris.

 

Here is the article:

 

 

Carriers join call for help during turbulent times

Nishika Patel

 

Wednesday, June 04, 2008

 

Hong Kong airlines have joined a global call to governments, airports and labor unions to help the industry survive amid rocketing fuel prices and a global economic slowdown.

The International Air Transportation Association issued a string of demands during its annual general meeting in Istanbul and revised downwards industry forecasts for 2008 - from a profit of US$4.5 billion (HK$35.1 billion) to a loss of US$2.3 billion.

 

It also appointed Cathay Pacific chief executive officer Tony Tyler to chair the body from 2009 - signaling the growing importance of Asia- Pacific's aviation industry .

"The situation has changed dramatically in recent weeks. Oil skyrocketing above US$130 per barrel has brought us into uncharted territory. Add in the weakening global economy and this is yet another perfect storm," IATA director general Giovanni Bisignani said.

 

IATA member airline Cathay Pacific, which attended the AGM, gave its backing to the resolution.

 

"We support IATA's declaration and call for action to improve the operating environment for all airlines," a Cathay Pacific spokeswoman said.

 

IATA's resolution called for governments to scrap "archaic rules" preventing airlines from merging across borders, refrain from imposing multiple punitive taxes, and invest in infrastructure to cut back wasteful fuel consumption.

 

 

The industry's total fuel bill in 2008 is expected to soar to US$176 billion, accounting for 29 percent of operating costs.

 

 

[TinBrick]

It's also worth bearing in mind that aviation fuel is in general exempt from tax and excise duty. This means, for example, if one flies from Paris to Madrid the fuel is tax-free, but not if one drives.

 

LibDems now calling for the tax-free status of aviation fuel to be removed:

 

http://www.independent.co.uk/news/uk/polit...idy-842770.html

 

The Government has been urged to abolish a £10bn-a-year "hidden subsidy" to the airline industry to bring it into line with hard-pressed motorists struggling with higher petrol prices.

 

Although the aviation industry claims it is being badly hit by the soaring price of oil, it still enjoys a double boost denied to drivers because it does not pay fuel duty or VAT on the fuel for its planes. New figures suggest this subsidy is worth £9.92bn at current levels of fuel tax.

 

The proposal will be strongly opposed by airlines, which have already warned that passengers face surcharges of £30 a ticket this summer because the cost of aviation fuel has doubled in the past year.

 

With hauliers and fishermen protesting that their livelihoods are at risk and motorists feeling the pinch as the economy slows, the Liberal Democrats argue that the airlines should no longer get special treatment.

 

[malco]

Yes it will be interesting to see how people react to the end of cheap flights. Part of the problem is that the industry shot itself in the foot by offering flights virtually free, so people took flying for granted. That could never have lasted under any circumstances. The banks made the same mistake 25 years ago when they introduced free banking. Stupid! Now people take a significant service in their lives for granted when they should pay about a tenner a week for it (?) and the banks have to do other things like throw cheap loans at people to make money.

 

Expect free banking to disappear soon. I will not be sorry. I don't like getting something for nothing. Nothing good comes of it.

 

Cheap flying is pretty recent. Even in the mid 1970s it was not common for a family to fly abroad on holiday. I can clearly recall a "rich kid" in my class creating a stir when his parents flew the family to Florida for the summer holidays.

 

Flying is still pretty cheap. I mean, to fly across the world for less than an average week's wage is still a staggering privilege. Two generation's ago it cost more like a month's wages and would have taken a month aboard a seam ship. So, even if you saved up, finding the time to do it was also a problem.

 

The Airbus A380 is in real trouble. Airbus wll be crippled if the project fails.

[surfdude]

I read over the weekend that China Airlines out of Taipei are going to start cutting their flights by 10% per month until the rise in the cost of fuel abates. At this rate, they should be grounded early next year.

 

I would be seriously worried if I had an interest in the company or was planning to use them in the near future.

[Itinerant Wanderer]

Hi,

 

A bit of a repeat of a previous post but hey....

 

Recently had a chat with the head of a major airline. Their fuel bill has gone from US$200m to $1.2billion in five years. Ouch. US Airlines with older planes are already struggling to compete with airlines running newer more fuel efficient planes.

 

Where I live the fuel surcharge on flights to London went up by (not to, by) £250 a couple of weeks ago. That is £1000 EXTRA on flights for a family of four to a popular if luxurious long haul destination. Some of these destinations are really going to struggle to attract tourists if they have to pay this much extra on top of what was already an expensive holiday - thats nearly £1800 of pre-tax income assuming you pay 40%. UK consumers may already be feeling it but the credit crunch/fuel crisis may really hit far-flung tourist dependent economies hard down the line.

 

CS

[GTG]

We will probably see the regeneration of the old traditional seaside resorts like Torquay, Brighton, Blackpool and Skeggy etc. Holiday camps like Butlins, Pontins and Center Parks should also benefit from the holidaying masses. Defensive investment opportunities perhaps but with a currency risk. Resorts with good rail links being an important consideration.

 

Travelling by train to near european destinations will become popular holiday destinations particularly for residents in south east UK although this will be restricted for the foreseable future as the pound detioriates against the euro. France has an excellent high speed rail network.

 

Tour operators and possibly aircraft manufacturers will be hit with some consolidation likely in both industries. Possibly some shorting opportunities here.

[Fishfinger]

Good! One of nature's bounty's p*****d up the wall so we can all to Spain for our holidays?

 

Are most of our journey's necessary? No.

 

I for one will not mourn the passing of the likes of Ryanair.

[drbubb]

Hong Kong airlines have joined a global call to governments, airports and labor unions to help the industry survive amid rocketing fuel prices and a global economic slowdown..

 

One of my neighbors is a pilot working for an airline called HK Airlines.

He is concerned. He will not make any long term plans- like buying a flat - until he is much

more sure that his job is secure

[surfdude]

One of my neighbors is a pilot working for an airline called HK Airlines.

He is concerned. He will not make any long term plans- like buying a flat - until he is much

more sure that his job is secure

 

Over the last couple of years there have been a lot of pilots coming (with their families) from Argentina, Brazil and elsewhere to work for Hong Kong Express and HK Airlines both of which are under the parent company of Hainan Airways. I am not surprised that they are concerned given what happend recently to Oasis ( I was really sorry to see them go as the service and staff were top-notch).

 

A few months ago a mate told me that their is a shortage of pilots and Cathay has been amplyfing its recruitment to attract and train more pilots. I wonder if there is still alot of demand given the way things are playing out in the airline industry as a whole?