Fuel Costs Clip Airline Wings
By Matthew Hennessey | July 23, 2008
It doesn't take a frequent flier to realize that the airline industry is headed for a hard landing.
The rising price of jet fuel, up almost 100 percent in the last year, has the global airline industry struggling to cut costs, boost profitability, and salvage its image. Analysts predict a major industry contraction within the next two years.
Many commercial carriers have been banking on a new generation of fuel-efficient airplanes to restore the glamor of air travel while cutting costs and reducing carbon emissions. But the Airbus A380 and Boeing 787 Dreamliner have experienced arrival delays stemming from a lengthy backlog of orders. Airlines must wait up to six years for delivery of newly ordered planes.
Some airlines may not survive that long. The airline industry sees a $1.6 billion cost increase for every one dollar increase in the price of oil, causing companies to slash perks, cancel routes, and raise ticket prices to stay aloft. Delta and American reported losses of $1 billion and $1.4 billion, respectively, during the second quarter of 2008. United lost $2.7 billion.
Upgrading airline fleets to include newer, fuel-efficient planes requires investment capital. With so much uncertainty in the air, opportunistic investors are biding their time. Consolidation through mergers and acquisitions likewise entails massive outlays of cash upfront. With the exception of Southwest Airlines, which hedged its exposure to the price of oil in the futures markets, the cash reserves of most U.S. airlines are heavily depleted.
In July, Virgin Atlantic CEO Richard Branson predicted "spectacular casualties" in the industry during the next year. "You've not only got the banking crisis and the housing crisis, you've got the soaring fuel prices as well," he told The Times. "One of the big American carriers will almost definitely go."
Could one or two failing airlines bring down the entire industry?
Probably not, though analysts expect the price of oil to stay high, making a vastly smaller airline industry likely. There is a hidden benefit of sustained high oil prices, however, in the incentive they provide to develop alternative sources of power.
In February, a Virgin Atlantic plane run in part on biofuels made a successful flight between London and Amsterdam. A drinkable mixture of coconut oil and babassu oil powered one of the jumbo jet's four engines.
Though lauded as a promising step toward improving fuel efficiency, some questioned the practicality of running a global industry on coconut power. Jos Dings, director of the European Federation of Transport and the Environment, told Australia's ABC Online, "If Virgin would power its entire fleet with biofuel, it would have to use about half of the U.K.'s arable land." Biofuels have been fingered as a prime culprit in the recent global inflation of food prices.
Several European aircraft designers are currently competing to manufacture a solar-powered airplane capable of flying around the world. French firm LISA Airplanes is outfitting the wings and horizontal tail of its experimental Hy-Bird plane with photovoltaic cells to provide energy for takeoff. A hydrogen fuel cell will power the Hy-Bird's electric engine while the plane cruises.
Swiss engineers at the Solar Impulse project are developing the HB-SIA, a prototype airplane utilizing solar panels as both an energy source and as a wing surface. Unlike the Hy-Bird, the HB-SIA will have no engine, requiring it to climb during the day as sunlight charges its batteries and descend during darkness.
LISA Airplanes has already produced a scale model and expects to complete assembly of the Hy-Bird by the end of 2009. Solar Impulse expects to perform its round-the-world trip in the HB-SIA in five stages during 2010 and 2011.
Commercial flights on solar-powered airplanes are a long way off. But with the price of oil potentially on its way to $300 a barrel, cheap air travel has certainly become a thing of the past.
If you've been tinkering with an aviation innovation in your garage, stow your tray table and prepare for takeoff.
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