FLY2LIM
Topic Author
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What If The Price Of Oil Continues To Rise?

Tue Jul 18, 2006 3:29 am

I was watching MSNBC yesterday (while running on the treadmill at the gym, puff, puff) and they said that, because of the unrest in the middle east and the rest of the world, Americans could be looking at 4 or 5 dollars per gallon for gasoline to fuel their cars, which would mean that the price of a barrel could be over $100 some day. This is speculation (by the experts, not by me), but it's the same speculation that often drives the price of oil.
So, what happens if we hit $100 per barrel of oil? What would that mean to the airlines? Aren't many of their fares already at a loss?
Any thoughts?

FLY2LIM
Faucett. La primera linea aerea del Peru.
 
FLY2LIM
Topic Author
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 12:57 am

Wow, I started a thread about a relevant topic and the doomsayers at a.net didn't reply predicting doom and gloom to all the airlines?
Let me see if I can get some action now. I really believe that if the price of oil goes over 100 a barrel, some airlines may not be able to operate. What would happen to fares?

FLY2LIM
Faucett. La primera linea aerea del Peru.
 
bucky707
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:07 am

Quoting FLY2LIM (Reply 1):
What would happen to fares?

hmm, they would go up?
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:51 am

Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.
 
DLPMMM
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:55 am

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.

At last, a bright side to rising oil prices! The end of the flying Greyhound busses.
 Smile
 
foxdelta
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:57 am

Not much will happen... Ah yeah, some airlines will fold, but simply to be replaced with new ones with lower cost structures.

Cheers  twocents 
 
mandala499
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:59 am

I wish they'd stop this "fuel surcharge" and just slap up the fare...

Mandala499
When losing situational awareness, pray Cumulus Granitus isn't nearby !
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 2:25 am

Quoting FoxDelta (Reply 5):
Not much will happen... Ah yeah, some airlines will fold, but simply to be replaced with new ones with lower cost structures.

Unless you can develop an engine that can use air as fuel, there is a limit to lowering cost structure. At $100/barrel oil, fares have to go much higher, unless you get volunteers from A.net as employees.
 
FLY2LIM
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 2:37 am

Quoting Letsgetwet (Reply 7):
Unless you can develop an engine that can use air as fuel, there is a limit to lowering cost structure. At $100/barrel oil, fares have to go much higher, unless you get volunteers from A.net as employees.

I find it so hard to believe that people think so casually about this subject. There are thousands of people who depend on air travel for business, for commerce, etc. There are companies like FedEx who would also have to raise prices. Not only would air travel be affected, a lot of people would be out of business because shipping costs would be so high, etc. Also, someone said that "a few" airlines would be out of business. I think it could cripple the entire system. What if NW, DL, UA disappeared from the map?

FLY2LIM
Faucett. La primera linea aerea del Peru.
 
Tan Flyr
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 2:48 am

At some point, several factors will come into play when oil would hit 85,90 or 100.00 per barrel.
1. Fuel substitutes..bio Jet-A of some sort
2.Less demand for all fuels..At 4.00 per gallon, there WILL be a decrease in consumption of motor fuels in the US.
3. Global economic slowdown will also cause decreased demand for petroleum products.
4. Increased supply..I am still a firm believer that when (not if) we find the political will to open a tiny patch of ANWR for drilling the psychological impact on the market is at least 10.00 per barrel.
Add to that increased Oil production from the Sands from Canada, Oil Shales from the western states some day soon, the law of new supplies usually come into play when the price gets high enough.

A challenge yet to be addressed in the US is still lack of refining capacity. Pemex is studing a 7th refinery in Mexico, the Saudi's are building several new ones as well projects in China, India and other locales.
 
MalpensaSFO
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 2:49 am

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil?

This may be ashot in the dark...

Fares go up?

Quoting FLY2LIM (Thread starter):
What would that mean to the airlines?

More passenegrs need to travel, more reasons to jack up the airfares =

MORE REVENUE
TO FLY IS TO SERVE
 
atrude777
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 2:59 am

Quoting DLPMMM (Reply 4):
At last, a bright side to rising oil prices! The end of the flying Greyhound busses.

Greyhound buses don't fly so wrong topic sorry!

Alex
Good things come to those who wait, better things come to those who go AFTER it!
 
Rheinbote
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 3:23 am

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil?

Synthetic fuel becomes economically viable at around $80 per barrel. Synthetic fuel can made by hydrating coal, which is abundant in Russia, China, the US and Europe, amongst others. I leave the rest to your imagination.
 
SeeTheWorld
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 3:48 am

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.

There are a few legacy carriers that will fail before the successful LCCs do if oil continues to rise. You have to remember that the LCCs have much lower costs, and when oil goes up, it goes up for everyone (except those who have hedged, and the LCCs have hedged better than the legacy carriers, so it's a double whammy against some of them).
 
PlanesNTrains
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 4:11 am

Quoting TAN FLYR (Reply 9):
2.Less demand for all fuels..At 4.00 per gallon, there WILL be a decrease in consumption of motor fuels in the US.

I'm not sure how much that would help. I'm just going off second hand information, but I thought I've heard that the US consumes 25% of the worlds oil production. Of the US portion, only 7% goes towards filling automobile gas tanks. 7% of that 25% would mean that US cars consume about 1.75% of the worlds oil production.

Thus, if US auto consumption dropped 20% (a huge number), it would only dent the world consumption by about .35%. I'm sure China's airlines will eat that up soon enough  Smile.

I'd be more curious to know what choosing paper over plastic would do for the price of oil?  Smile

-Dave
-Dave
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 4:30 am

Quoting SeeTheWorld (Reply 13):
There are a few legacy carriers that will fail before the successful LCCs do if oil continues to rise. You have to remember that the LCCs have much lower costs, and when oil goes up, it goes up for everyone (except those who have hedged, and the LCCs have hedged better than the legacy carriers, so it's a double whammy against some of them

I agree that some legacy carriers will also fail. But if oil goes to $100/barrel and stays there, all the LCCs will fail because only wealthy people will be able to fly. Wealthy people will expect 1rst class service for high priced fares. Hedging will not help because it only takes the bumps out of an uphill climb.The world will become a much different place from how we know it. Get out your bicycles and forget about those island vacations!
 
ANother
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 4:33 am

Actually Kerosene is allready at $93/bbl See; http://www.iata.org/whatwedo/economics/fuel_monitor/index.htm
 
emseeeye
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 4:37 am

I wonder what the airlines thought in the 50's, 60's and 70's when they thought of future fuel / crude prices? However planes are still flying today. If crude prices are to rise and stay at that level on a very long term basis then inflation would have to compensate.

Hamburgers were just $.05 to $.10 each, gasoline was at $.10 a gallon at one time and the price of cars were below $4000.

Inflation at some point will catch up to us. Maybe quicker and sooner than later but its coming and inflation will be forced to balance the high cost of energy. Maybe some (or a lot) of companies including airlines may take a hard hit in the gut but it will have to happen in one way or another.

Just my  twocents 
 
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ER757
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 6:22 am

Quoting TAN FLYR (Reply 9):
4. Increased supply..I am still a firm believer that when (not if) we find the political will to open a tiny patch of ANWR for drilling the psychological impact on the market is at least 10.00 per barrel.
Add to that increased Oil production from the Sands from Canada, Oil Shales from the western states some day soon, the law of new supplies usually come into play when the price gets high enough.

Opening ANWR will not drop the price anywhere near $10/barrel. Most estimates of the available oil in ANWR is that it would equal 2% of the USA's oil needs. Hardly the amount that would cause such a precipitous drop as you suggest. Add to that the fact it will take a MINIMUM of 5 years to see a drop of that oil reach a refinery once approval is given and your scenario becomes a pipe dream (pun intended).
As for oil sands - VERY expensive to produce, won't do much to bring the cost down even if it will increase supply.
 
AirbusA6
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 6:23 am

It will hasten the retirement of older types, for those airlines with money, the economics of more fuel efficient aircraft will outweigh the cost of purchasing them.

It will also make certain countries very rich too....
it's the bus to stansted (now renamed National Express a6 to ruin my username)
 
jamesbuk
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 6:37 am

NW will retire there Dc-9's LOL.

The fact is airlines will want to survive so theyll keep raising there fares till either a new fuel alternative or people stop flying them and they go bust.

Rgds --James--
You cant have your cake and eat it... What the hells the point in having it then!!!
 
foxdelta
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 6:40 am

Right now oil is basically twice as much as when the First Gulf War started. When the first Gulf War ended, it also ended the operations of some airlines. Eventually oil went down to about $12-14/barrel. New airlines started, those that already were there went to record profits... eventually oil raised its fares and the same thing happened: airlines folded, others survived, etc. It is HISTORY REPEATING!

Cheers  banghead 
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 7:11 am

Quoting FoxDelta (Reply 21):
Right now oil is basically twice as much as when the First Gulf War started. When the first Gulf War ended, it also ended the operations of some airlines. Eventually oil went down to about $12-14/barrel. New airlines started, those that already were there went to record profits... eventually oil raised its fares and the same thing happened: airlines folded, others survived, etc. It is HISTORY REPEATING!

Cheers

IMHO we will never see oil under $30/barrel again.
 
B6JFKH81
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 7:21 am

Car manufacturers are pumping out the newer engines that burn the newer fuel which is 85% non-petrolium based fuel (I think its called E85). Is this happening in the aviation industry? Imagine what a great boost it would be for the agricultural community to be able to fuel the cars and planes!!!!
"If you do not learn from history, you are doomed to repeat it"
 
bond007
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 7:33 am

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it.



Quoting Letsgetwet (Reply 15):
But if oil goes to $100/barrel and stays there, all the LCCs will fail because only wealthy people will be able to fly.

OK, let's get real here for a moment.

Firstly, oil prices have never kept pace with inflation (as mentioned). If you look at historic oil prices adjusted for inflation you'll see.

Next, let's do some simple math, making lots of assumptions but hopefully making the point:

Fuel accounts for somewhere around 25% of total operating costs of an airline (see quarterly reports)....so...cost of oil today say $80/barrel. OK, it goes from $80/barrel to $100/barrel...a 25% increase. This makes a 6.5% increase an airline's total costs...correct me if I'm wrong.

So...my $250 fare now has to be increased to $267, and my $400 fare has to be raised to $425 to cover the increased cost of fuel.

I don't have to be a millionaire to buy my new ticket.

Now, did I miss something here??

...and that's assuming that the airlines aren't also cutting that other 75% of total costs.

Jimbo
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
jetdeltamsy
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 7:38 am

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil? What would that mean to the airlines?

You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end. Tens of thousands of employees would be laid off.

It's hard to guess what would happen with the Regional Jets. They would probably continue flying on many routes replacing mainline service, albeit at much higher fares.

And I think it's just a matter of when and not if. And I think the "when" is just about around the corner...like before next summer.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
iowaman
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 7:49 am

Quoting ER757 (Reply 18):
Opening ANWR will not drop the price anywhere near $10/barrel. Most estimates of the available oil in ANWR is that it would equal 2% of the USA's oil needs. Hardly the amount that would cause such a precipitous drop as you suggest. Add to that the fact it will take a MINIMUM of 5 years to see a drop of that oil reach a refinery once approval is given and your scenario becomes a pipe dream (pun intended).

$10/barrel does seem excessive, however the excess capacity is very small so a 2% increase in oil production for the U.S. would help.

Quoting Jetdeltamsy (Reply 25):
You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end. Tens of thousands of employees would be laid off.

I hope you are sarcastic.

Quoting B6JFKH81 (Reply 23):
Car manufacturers are pumping out the newer engines that burn the newer fuel which is 85% non-petrolium based fuel (I think its called E85). Is this happening in the aviation industry? Imagine what a great boost it would be for the agricultural community to be able to fuel the cars and planes!!!!

It's all great on the surface. Once you dig more into it however, E85 has approximently 20% less mpg than regular gas, and there is no where near enough corn to provide E85 for all cars (it would take years to make all cars run on E85 anyways). Also, as more and more ethanol from corn is produced, the price of food also goes up. These plants also use a fair amount of power (most power in the U.S. comes from coal and natural gas power plants) which helps off-set the savings in energy.
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 8:19 am

Quoting Bond007 (Reply 24):
Fuel accounts for somewhere around 25% of total operating costs of an airline (see quarterly reports)....so...cost of oil today say $80/barrel. OK, it goes from $80/barrel to $100/barrel...a 25% increase. This makes a 6.5% increase an airline's total costs...correct me if I'm wrong.

That 25% of operating cost was when oil was$40 -$50/barrel. Double that and you'll get a lot more than a 6.5% increase. When gas goes to $8/ gallon at the pump, how many people will start walking to the train station?
 
n844aa
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 8:35 am

Quoting Jetdeltamsy (Reply 25):
You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end. Tens of thousands of employees would be laid off.

Do you mean this or are you being facetious?

Quoting Letsgetwet (Reply 27):
That 25% of operating cost was when oil was$40 -$50/barrel. Double that and you'll get a lot more than a 6.5% increase. When gas goes to $8/ gallon at the pump, how many people will start walking to the train station?

Oh, probably about as many as do in Europe?
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
bond007
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 8:42 am

Quoting Letsgetwet (Reply 27):
That 25% of operating cost was when oil was$40 -$50/barrel.

Well....I just looked at AAL 1Q 2006 Report. The average price of oil was around $67/Barrel over those 3 months. Fuel accounted for around 28% of AAL total operating expenses.

So...shall we recalculate....$67 -> $100 = 50% increase. That means ... all other things equal (NO other cost cutting), an increase of 14% in total costs.

...so my $250 ticket now becomes $285. I really don't see too many missing their flights because they aren't wealthy.

Just to make the point realistic. From AAL 1Q report , Fuel costs increased 34% from 2005, and on average other costs increased by 3-4%. BUT, the increase in total operating expenses was 10%.

Doom and gloom....not for me....it's an excuse for a bad income statement, and not raising fares to cover costs.


Jimbo
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
KarlB737
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 8:48 am

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil? What would that mean to the airlines?


Courtesy: Chicago Tribune

Wake-up Call To U.S. On Oil?

http://www.chicagotribune.com/busine...732960.story?coll=chi-business-hed

FLY2LIM probably is asking the most important question on ANet at this time. Look at this situation in another light:

1. The airlines have already taken their staff to the cleaners and sucked their
financial life and future right out of them.
2. The airlines are not reconsidering turbo-props for some routes.
3. (Without a Political Motive) - There are those that have fought the acquisition of available oil in Alaska that would give us some relief and might buy us at least 20 years to develop some alternatives.
4. Other factors in play here which you can add to this list.............

[Edited 2006-07-19 02:13:24]

[Edited 2006-07-19 02:14:36]
 
n844aa
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 8:48 am

Basically what'll happen is that the airlines will charge more to cover fuel costs, people will keep buying tickets because people have to fly, and after a few airlines fail, the ones with the healthiest cost structures and most efficient fleets will be around, even in the days of $120/bbl oil. And, you know, a few of them will even be making money. The industry will shake itself out, as markets are wont to do.

Are high energy prices a drag on the economy? You bet they are. But there's an immense amount of economic activity that simply couldn't take place without modern aviation. FedEx will keep flying, Southwest will keep flying, the network carriers will keep flying, and people keep getting from point A to point B -- even if it means stopping in Atlanta on the way there. The cessation of commercial aviation in the United States would be vastly more damaging than $100+ oil prices.
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:03 am

Quoting Bond007 (Reply 29):

Do you really believe that you can just keep cutting people 's wages, just so you can fly to your golf game?Most carriers are operating at no-frills minimum now. $100/barrel oil is not just going to raise your airline ticket, in the long run, it will raise almost every expense in your life from your spandex shorts to your medication. There is almost nothing that is not affected by the price of oil. So you are going to say" We'll just give people raises to keep up with inflation. (There goes your cost cutting) I think $100/barrel oil is alot more serious than you would like to think.
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:11 am

Quoting N844AA (Reply 31):

I agree that not all airlines will go under. But the average Joe is not going to be flying to his timeshare in Aruba. Flying will stop being the backpackers mode of transportation.
 
bond007
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:12 am

Quoting Letsgetwet (Reply 32):
Do you really believe that you can just keep cutting people 's wages, just so you can fly to your golf game?

..and where did I say this??

I said if there were NO other cost cuts, a $250 fare = $285.

Do you really think the legacy airlines are running the most efficient, cost effective businesses?? That's why there are airlines called LCC's and those that aren't.

Quoting Letsgetwet (Reply 32):
I think $100/barrel oil is alot more serious than you would like to think.

Maybe so....but the airlines can cover it. My spandex shorts (god help us), were not part of my point due to the orginal question:

Quoting FLY2LIM (Thread starter):
What would that mean to the airlines?

Jimbo

[Edited 2006-07-19 02:13:20]
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
BoomBoom
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:13 am

The Boyd Group has an article on their website:
$80 Oil - Get Ready For The Brave New World

Quote:
Some current issues to consider as the price of jet fuel moves closer to parity with Chanel No. 5:

High oil prices mean higher attractiveness of new-technology aircraft. Plan on it: Composites are in. Aluminum is going out. along with eventually large fleets of existing airliners and at least a major portion of the plant infrastructure that produced them.

The economics of 50-seat and smaller jets are getting about as attractive as Madeline Albright in a hula skirt.

Turboprops - maybe some increased interest, but only in the 60+ seat variety, and it won't be enough to materially change the production rates at Bombardier or ATR for the long term.

Most Resilient: Legacy Carriers. As noted earlier, independent analyses by The Boyd Group indicate that the victim list from $80 oil and a traffic downturn would be very different than what ambient thinking may have it. It will be LCCs that have the greatest vulnerability, while legacy carriers such as American, Northwest, Continental, and Delta are better postured to weather the storm.

http://www.aviationplanning.com/asrc1.htm

[Edited 2006-07-19 02:19:55]
Our eyes are open, our eyes are open--wide, wide, wide...
 
jetdeltamsy
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:18 am

Quoting Iowaman (Reply 26):

Quoting Jetdeltamsy (Reply 25):
You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end. Tens of thousands of employees would be laid off.

I hope you are sarcastic.



Quoting N844AA (Reply 28):
Quoting Jetdeltamsy (Reply 25):
You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end. Tens of thousands of employees would be laid off.

Do you mean this or are you being facetious?

I'm not kidding. When crude goes to $100 a barrel, it was almost certainly destroy the airline industry as we know it. The telecommunications business will explode. Face to face meetings and average folks traveling by air will become a thing of the past. There are no quickly obtainable viable alternatives to crude oil based jet fuel. I don't think all airline service will end, but things won't resemble the industry as it operates today.

I also think that war will break out throughout the world over oil. Supply doesn't currently seem to be the problem, but when faced with a bankrupted world economy, I think it is entirely conceivable that countries will go to war to have access to cheaper oil supplies.

Am is pessimistic? You bet. I think we are on the verge of change the likes of which the world has never seen before. Almost every single thing we do revolves around energy produced from oil. This will affect everyone in ways we can't even imagine today.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
n844aa
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:29 am

Quoting Jetdeltamsy (Reply 36):

I think you're absolutely right in almost everything you say, but I just can't agree with your conclusion. Look at the industry right now: a good chunk of the airlines are either making money, or pretty damn close to breaking even. And this is with $80/bbl oil! I think if prices stay here, or rise, then yeah, we'll see some airlines fail. But once you've got that decrease in capacity, I think it's almost certain that the survivors will gain sufficient pricing power to cover their costs. Will ticket prices go up? Certainly -- the days of the $199 transcon may be gone for good. But I'm confident (perhaps foolishly so) that there are enough people who need to be physically present at locations not within driving distance.

Also, I think sustained energy prices at this level will continue to spur the development of tar sands and oil shale. That, I think, might result in an environmental disaster, due to increased carbon emissions, but given human nature, I wouldn't be surprised if the airlines keep flying right up to the very end.
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
letsgetwet
Posts: 490
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:30 am

Quoting Jetdeltamsy (Reply 36):

Could'nt have said it better.
This is IF oil goes over $100/barrel AND stays there. (Not incinceivable)

[Edited 2006-07-19 02:35:22]
 
bond007
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:31 am

Quoting N844AA (Reply 37):
Certainly -- the days of the $199 transcon may be gone for good.

...and shouldn't have been there to start with!


Jimbo
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
n844aa
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:32 am

Quoting Bond007 (Reply 39):
...and shouldn't have been there to start with!

That reminds me of a question I've always wondered about -- just what is the marginal cost of hauling an extra (say) 175 lbs 2500 miles?
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
bond007
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:35 am

Quoting N844AA (Reply 40):
That reminds me of a question I've always wondered about -- just what is the marginal cost of hauling an extra (say) 175 lbs 2500 miles?

All I can tell you is that the revenue is half as much as if you'd charged him $399  Wink


Jimbo
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
n844aa
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Joined: Fri Jul 18, 2003 10:38 am

RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 9:40 am

Quoting Bond007 (Reply 41):
All I can tell you is that the revenue is half as much as if you'd charged him $399

I blame PEOPLExpress for this state of affairs Big grin
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune
 
peterinlisbon
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 10:00 am

I think that if it does suddenly get a lot worse, the airlines at risk would be Varig (probably going anyway), Alitalia, and perhaps some of the US carriers that have been in and out of bankruptcy. Low cost airlines have larger cash reserves, most of them have newer and more fuel efficient planes, they pack people in tighter, have higher load factors, use less fuel circling around at busy airports, etc.

The good news is that airlines will replace their aircraft more often. Perhaps we are heading towards aircraft having a life of 10 years rather than the 20 years which was common in the past. Airlines will all want to have the latest, most fuel efficient aircraft. This will make life more interesting for us, as there will be a lot of developments. Probably if the price of oil was still at 30$, airbus wouldn't have had to redevelop the new version of the A350 and the 787 wouldn't be selling so quickly.

In any case, hopefully the sustained high prices will encourage people to buy more efficient (such as hybrids) or smaller cars. Development of alternative fuels is also making progress. One thing I am very curious about is whether any of the engine makers are looking at alternative fuels. These days A versus B is all about fuel consumption. Imagine something that didn't use any kerosene at all! If they could develop a jet engine that ran on ethanol...
 
letsgetwet
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 10:08 am

Quoting Peterinlisbon (Reply 43):
Imagine something that didn't use any kerosene at all! If they could develop a jet engine that ran on ethanol

And where would you get that much ehanol? And how much would it cost?
 
tsaord
Posts: 1267
Joined: Thu Aug 04, 2005 2:46 pm

RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 10:30 am

Just off the top of my head and I know this sounds way out there, but does anyone thinkg in the future Airbus or Boeing would start some type of solar powered or alternative power supply to power the planes? I have always been a sucker for "futuristic" type of things. But its just a thought! If Airlines have to drive up prices, then so be it! For me that just means Ill have to save a little more money and pick and choose where I want to go.

After looking at some of these comments though about "priviledged" being able to fly, take your head out of your rear end! Everyone has the right to get to where they want to go without the need of some special "rights of passages" based on airfare!
there are icons, then there are legends, then there is rick flair
 
letsgetwet
Posts: 490
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 10:33 am

Quoting Tsaord (Reply 45):
Everyone has the right to get to where they want to go without the need of some special "rights of passages" based on airfare!

You have the "Right" to go anywhere you can "Afford" to go!
 
tsaord
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Joined: Thu Aug 04, 2005 2:46 pm

RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 10:46 am

Quoting Letsgetwet (Reply 46):
You have the "Right" to go anywhere you can "Afford" to go!

You have a point!
there are icons, then there are legends, then there is rick flair
 
iowaman
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RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 11:09 am

Quoting Jetdeltamsy (Reply 36):
I'm not kidding. When crude goes to $100 a barrel, it was almost certainly destroy the airline industry as we know it.

The airline industry has survived a $40 increase in oil in the past few years. Another $20 would definitely hurt, but I don't think the effects would even be close to "destroying" the airline industry.
 
art
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Joined: Tue Feb 08, 2005 11:46 am

RE: What If The Price Of Oil Continues To Rise?

Wed Jul 19, 2006 1:49 pm

Quoting Rheinbote (Reply 12):
Synthetic fuel becomes economically viable at around $80 per barrel.

That would provide a long term cap on the price of crude but how long would it take to get production up to 10 or 30 or 50 million barrels a day?

Quoting Bond007 (Reply 24):
Next, let's do some simple math, making lots of assumptions but hopefully making the point:

Fuel accounts for somewhere around 25% of total operating costs of an airline (see quarterly reports)....so...cost of oil today say $80/barrel. OK, it goes from $80/barrel to $100/barrel...a 25% increase. This makes a 6.5% increase an airline's total costs...correct me if I'm wrong.

So...my $250 fare now has to be increased to $267, and my $400 fare has to be raised to $425 to cover the increased cost of fuel.

 checkmark 

Quoting Jetdeltamsy (Reply 25):
You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub and spoke business models would probably come to an end. Service to all but the largest cities would end.

See Bond007's comments above.

Quoting Bond007 (Reply 29):
Doom and gloom....not for me....it's an excuse for a bad income statement, and not raising fares to cover costs.

The American airline disease! $100 per barrel will not be such a problem elsewhere. Companies will pass the extra cost onto consumers.

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