Sunday, May 25, 2008

This Is Your Father's Airline Industry

"The airline industry as it is constituted today was not built for $125 [per barrel] or $135 oil," Gerard Arpey, American's chief executive, told reporters. "It can't continue in its present state."
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"The industry will not and cannot continue in its current state," he said. "The fact that four more airlines have liquidated this year and one is operating in Chapter 11 is clear evidence of that fact.
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"The bottom line is that the airlines are at the end of their rope," said Rick Seaney, chief executive of FareCompare.com in Dallas, which tracks fare adjustments. "They can raise fares and cut capacity, but after that there's nothing they can do if people start running to the exits," meaning passengers cease buying tickets.
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"Are we at the breaking point?" David Castelveter, a spokesman for the Air Transport Association, the trade association for major carriers, asked rhetorically at his office in Washington. "We're there."
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Herb Kelleher, who retired as chairman of Southwest on Wednesday, said this was a "very perilous time" for U.S. carriers.

"We are being forced back to the days when fewer people flew because the cost barrier was so significant," Kelleher said at the airline's annual meeting, Bloomberg reported. "As you have a contraction of service and higher fares, you may see a lot less air service across the U.S. We hope it's not a permanent situation. Fuel prices are just beyond belief."
These are the lamentations of an industry in upheaval. Airlines are doing whatever they can to make money, at best, and stave off bankruptcy, at worst. One of the most recent measures, as the articles linked above detail, is to charge for checked bags. American will be charging $15 for one checked bag and $25 for a second. They will also be cutting jobs by perhaps 7 percent and cutting "capacity" by 11 to 12 percent, which will mean parking 40 to 45 jets and returning others to lessors, according to the Dallas Morning News article.

But American is the nation's largest airline, and the low-cost Southwest, the only airline making money, has always been a horse of a different color. Counterintuitively, Southwest's customer satisfaction rating has risen while other Airlines' ratings have tanked.
The exception, of course, is profitable Southwest Airlines. It has been profitable for 35 consecutive years, largely because of fuel hedging, or contracting for purchase of fuel at a fixed price for future delivery. This year, Southwest has 70 percent of its fuel hedged at approximately $51 per barrel. In 2009, it's more than 55 percent at $51, and in 2010, it's nearly 30 percent at $63 per barrel. (San Francisco Chronicle)
Furthermore, Southwest does not buy into the hub-and-spoke system that is (or was) the credo of other carriers. A hub-and-spoke approach is not such a bright idea when jet fuel is $173 per barrel (with $131.70 crude, after refining). Though I cannot locate a source at the moment, I am almost certain -- and it seems intuitive -- that short-haul flights are the least fuel-efficient in terms of passenger miles per unit of energy, due to high fuel usage during takeoff.

The compounding problems of air travel in 2008 are an irritation for airline passengers accustomed to feeling like they deserve something for nothing (or, at most, for less than what it truly costs), and the proposed job cuts will be a major life challenge for all the airline employees affected, even if their unions just don't get it ("It's time to fix the problems" was the message of the Allied Pilots Association to American Airlines, assuming that peak oil can be brushed aside with the wave of a CEO's arm.)

But how much have we acknowledged that a drop in flights -- and the concurrent decrease in driving -- is a gift to the planet and the future of global quality of life? Flying is one of the most destructive forms of long-distance travel, not only due to the energy used (source: see tables 2.13 and 2.14), but also due to the extra warming effect of water-vapor contrails formed by planes flying at high altitudes, which, as George Monbiot cites, could be 2.7 times the effect of the CO2 emissions alone.

Global warming is the type of planetary crisis that is perfectly tailored for insufficient response from the general public. Its effects are mostly distant, both spatially and temporally, from their causes. It is extremely complex in nature, with a high degree of uncertainty even if its general characteristics -- that the planet is warming overall, that greenhouse gas emissions are a major cause, and that the likelihood of catastrophic effects is too great to refrain from action -- are evident.

It is unfortunate that it has taken that same old behavior driver -- the pocketbook -- to lead to some meaningful drops in the conveniences that are collectively destroying the planet. We could have made these cuts without causing so much hardship -- that is, without losing so much mobility -- if, for instance, just a few people in Washington (or in state governments) had cared a whit about a decent national rail system, like we see in Europe and Japan. This would have made a more energy-efficient (and non-contrail-forming) mode of travel more attractive to more people. But unfortunately the entire U.S. has only one high-speed rail line -- the Acela Express from Washington, DC, to Boston -- and plans for others (in California and the Southeast U.S., linking Atlanta, Charlotte, Raleigh, and Richmond to Washington, DC) are still at least 5-10 years away.

But could we have expected anything more in a society where the president tells people to fight the recession he helped bring about by going shopping?