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Will the energy crisis cut aviation?

weather man | 18.01.2006 00:12 | Analysis | Ecology | Globalisation | London | World

Today, the highest oil prices in more than three months led to the largest drop in the stock market in over six weeks and knocked back big consumers such as British Airways Plc. But will increasing oil prices help to temper the increased demand for air travel, the fastest growing contributor to greenhouse gas emissions?

If air travel were to grow at the predicated rate it would soon become the biggest single obstacle to curbing climate change and put all other efforts to cut greenhouse emissions in danger of being swamped by aviation emissions.

The UK, for example has set a target of cutting carbon dioxide emissions by 60 per cent by 2050. But it also predicts a quadrupling of air travel by the same date. If the predictions are accurate then air travel would use up every last tonne of British emissions entitlements.

But as we reach the peak of world wide oil production, can the air industry survive until 2050 anyway? In fact can the economy and indeed civilisation as we know it survive until 2050 or even 2020 for that mater...

"It won't be as easy for stocks as in 2005,'' said Andreas Gartner a fund manager at SEB Investments in Frankfurt. "We'll have oil scarcity for the next months and years. There's no spare capacity", he said today.

He's not wrong, today the Dow Jones Stoxx 600 lost 0.7% in London, the biggest fall since November last year. Only one of 18 industry groups didn't slid, yes only the energy industry itself is doing well on the rising prices! And what of the air industry? Well, British Airways, the third-largest airline in Europe, saw it's shares drop 1.1% as investors weighed up the aviation industries future if oil prices continue to climb.

It's been a bad few year for much of the air industry. After slumps in air travel from 2001 to 2003 because of events such as 9/11, Sars and bird flu, the growth of the last couple of years hasn't translated into massive profits as oil prices have doubled. Now as fuel costs mount the IATA estimates that passenger growth in 2005 will have dropped to 7.8% compared to gains of 15.6% in 2004. The figures for 2006 are expected to drop further, perhaps 5.7% they predict.

The growth may be slowing but is still growth and that's got to be a good thing for those seeking profits out of the airlines if not for those concerned about having a functioning climate. Leisure travel demand has continued despite fare increases, and revenues are picking up. Infact it is only the persistent high cost of fuel prevents the airline industry from being the most profitable it's ever been. The year 2005 will be the fifth consecutive year that the global airline sector has posted huge losses, now totaling $42 billion since 9/11.

Since 2000, U.S. carriers have managed to cull more than $15 billion in annual non-fuel costs by cutting corners and reducing carrying capacity and shedding jobs. It won't stop there, they aim to chop several billion dollars more. More than 160,000 employees have already lost their jobs while most other workers have seen their pay and benefits cut, and their work requirements increased. United and the US Airways defaulted on their pension plans, and Northwest and Delta are candidates to do so this year.

But those savings have been overwhelmed by high fuel prices. In 2001, oil was slightly more than $30 a barrel but strong demand and limited supply have seen the price more than double even before Hurricanes Katrina and Rita struck the Gulf Coast. US airlines briefly paid more than $2.10 a gallon for jet fuel in October, vs. about 90 cents in October 2004. Ironically however, the high fuel prices gave the airlines the unexpected ability to push through a string of fare price increases grudgingly accepted by the traveling public.

So the airlines have finally been rewarded with increased revenue for each airline seat flown one mile, up about 6% in 2005. Those apparent gains caused airline stocks to surge towards the end of the year as investors thought the fortunes of the air-industry were turning around. The Amex Airline Index increased 42.5% from Sept. 21 to Jan. 6. AMR, American's parent, saw its stock price increase 128% in that period, while Continental stock rose 122%.

However, securities analyst Ray Neidl urges caution and says that while the risk of additional airline bankruptcy has faded for now he fears that, "the market has overreacted" to positive developments in the industry. Jonathan Leak, an executive at World Fuel Services, a consulting firm that advises airlines and others on fuel buying and hedging strategies, says that unless some unforeseen major event or trend shift triggers a big reduction in worldwide oil demand, "oil prices in 2006 will be volatile" and react to "the headlines of the day."

European airlines managed to scrape through with about $1.3 billion profits in 2005. In 2007 airlines that belong to IATA, accounting for 95 percent of all international passenger and cargo traffic, could return a collective profit of over $6 billion, the first time they had collectively returned positive figures since 2000. But IATA said it would only be possible if the price of oil in 2007 stabilised to an average of $50 per barrel.

Air travel is the world's fastest growing source of greenhouse gases like carbon dioxide, which cause climate change. The carbon emitted per passenger flying to Sydney for example is equivalent to a Mini driving around the earth 640 times. Globally the world's 16,000 commercial jet aircraft generate more than 700 million tonnes of carbon dioxide each year.

Air traffic which has been expanding at nearly two and half times average economic growth rates since 1960. It is expected the number of people flying will virtually double over the next 15 years. It's not surprising the industry has been expanding. In the UK the aviation industry is heavily subsidised with exemption from tax on fuel and VAT. It amounts to around £9 billion per year from the tax payer plus billions in the hidden economic costs for infrastructure and environmental damage.

Can the economy afford to continue to subsidise and industry that actually increases our trade deficit as demand for oil increases and production tails off? Can the planet afford a continued expansion of air travel in the light of global warming and the ensuing climate chaos?

The air industry is one of the most vulnerable to increased energy costs because it can't substitute any other fuel. While electricity can be produced from gas or coal etc, liquid fuels used for transport have no economically viable alternatives for the scale of consumption we current demand. The air industry may prove to be the first clear casualty of peak oil and an earlier indicator of the downslide beyond peak.

So, all this raises the question, while aviation may be the fastest growing source of transport greenhouse gases it is still small in compared to other human sources - if the massive predicted increase in air travel has been based on the availability of cheap flights and if those cheap flights will become impossible as liquid fuel prices continue to rise, is there any point in climate change campaigners targeting air travel? Would activist resources be better spent addresses the urgent need to invest in renewable energy and combating calls to introduce so-called 'clean coal' technologies?

These are the kinds of questions that will be asked at the grassroots gathering on peak oil that will take place in London next month. If you'd like to attend or help organise the event please email

weather man