Thursday, 14 April 2011

Rising Oil Prices and the Threat to the Aviation Industry

We've all known about "Peak Oil" for some time and been warning that this will impact on unsustainable fossil-fuel dependent industries. This is starting to hit home already, yet state aid continues to be pumped in to prop them up.

It has been reported, the aviation industry faces danger from fragile consumer confidence and rising oil prices as passenger numbers fall at Stansted and Heathrow Airports. The leisure market, dominated by Ryanair and easyJet and charter operators, remains weak. Stansted and Southampton were BAA's worst performers last month, posting year-on-year falls of 7.4% and 8.7% respectively. Colin Matthews, BAA chief executive, said: "Continued rises in the price of oil are a concern for airlines and passengers in all our markets." John Strickland, an industry consultant, agreed saying: "The big concern in the industry is still the oil price. It is rising rapidly." Rising oil prices means the cost of fares are increasing, thus further reducing passenger numbers. Last week BA increased its fuel surcharges for the third time in less than four months as the price of jet fuel rose to $134 (£82) a barrel – three times its low point in early 2009, in a attempt to survive. Fuel accounts for nearly a quarter of airline operating costs and is largely out of carriers' control.

The spiraling costs of fuel has greatly impacted budget airlines, such as Ryanair. Ryanair said its fuel bill soared by 93% in 2008 and represented almost half of its operating costs, up from 36% 2007. Budget airlines are mitigating the increases by charging higher fees for checking in bags and priority boarding passes. Budget airlines will try to leave the prices of fares untouched, as cheap tickets are key to their business model which use bargain fares to pack passengers on to airplanes. "They cannot afford to raise fares. It would break their model," said Strickland. "Occupancy would fall and they will not make enough money to cover increased fuel costs." Furthermore, the cost of fuelling a transatlantic flight, the most profitable part of BA's business, has quadrupled since 2000 to $44,000 (£22,200). It is estimated many airlines will not survive a combination of expensive fuel and a drop-off in demand as passenger numbers decline due to expensive fares and dwindling consumer confidence.

This ties in with the work Birmingham Friends of the Earth has been doing. We oppose the growth in aviation as it is one of the fastest growing sources of greenhouse gas emissions, plus airports create noise, air pollution and congestion. Rising costs of fuel and increased usage of the aviation industry are highly unsustainable for passengers and the environment. We are against the growth of this industry and would like to see it pay its full environmental costs, not shift them onto the tax-payer. Joe Peacock reacted to the news this week of state aid being provided to subsidise the building of the runway extension at Birmingham Airport through the Regional Growth Fund. "The aviation sector pays no tax on its fuel and no VAT on the sales of tickets and planes but that is not enough it needs our help to build the infrastructure from which it plies its trade.” “These decisions show the hand of the Government and with its financial support of the aviation sector how it can claim to be the Greenest Government ever is beyond us.” It is hoped a process of due diligence on the bids will be open to full public scrutiny.

No comments: