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Malaise in the Airline Industry: Safety, Fuel, and the Economy
Thursday, April 10, 2008
This lead in today’s Financial Times says it all:
Chaos gripped US airports for a third straight day on Thursday as the government’s top transportation watchdog called for changes to airline safety oversight, citing an “overly collaborative” relationship between airlines and their regulator, the Federal Aviation Administration.
Calvin Scovel III, the US transportation department’s inspector general, made his comments before Congress as American Airlines cancelled 900 flights to perform safety checks, stranding thousands of air passengers.
American has canceled over 2,400 flights and counting this week due to potentially faulty wiring in its MD-80s, which comprise one-third of its fleet and form the backbone of its medium-haul domestic fleet. At least 250,000 passengers have been affected, far more than when Southwest Airlines grounded dozens of 737s last week. Disruptions are afflicting other airlines as well, and further groundings are likely as the FAA responds to the harsh light being shone on its inspection standards.
On Tuesday, Jon Stewart of The Daily Show responded aptly:
Stewart’s money quote:
It’s all sort of ironic, when you think about it. When you fly, you are inspected quite thoroughly, whereas the plane itself is, perhaps, occasionally vacuumed. See, with this administration, if a passenger blows up a plane, it’s a failure in the War on Terror. But if the plane just blows up on its own, eh, that’s the market self-regulating!
Yes, that’s hyperbole (Jon Stewart is a comedian). But if the aviation system is generally safe, why on earth would federal regulators start down the dangerous slippery slope of cutting corners, glossing over potential problems, and creating the appearance of impropriety in dealing with the airlines they’re supposed to regulate?
Meanwhile, external economic factors have eviscerated the viability of several airlines, while many survivors are trimming their capacity (for more coverage, see last week’s Hotline). Yesterday oil prices (Nymex West Texas Intermediate) surged to a record $112.15 a barrel before settling at $110.87, even though US demand over the past four weeks was 0.4% below the same period a year ago. Oil was $52 a barrel in January 2007. Here is a quick list of airlines that are now history, a list that is bound to grow:
December 26, 2007 – Maxjet Airways (offering London-USA business class service) files for bankruptcy protection
March 31, 2008 – Aloha Airlines ends passenger services after more than 60 years
March 31, 2008 – Champion Air (Minneapolis-based charter operator) announces flights will end from May 31
April 3, 2008 – ATA Airlines ends service, files for bankruptcy protection
April 5, 2008 – Skybus, start-up low-cost carrier which had 65 new Airbus A319 jets on order, ends service
April 9, 2008 – Oasis Hong Kong, budget carrier, ends service after 17 months
So far, Amtrak revenues do not appear to have been hurt by the economic downturn (or recession), and fuel prices probably are driving some business to Amtrak. This will likely hasten as airlines are forced to raise fares and further reduce capacity to stay in the black.
Intrepid blogger Aaron Donovan has noted that passengers trapped in the current nightmare at American’s hub at O’Hare have the option of Amtrak’s hub at Chicago Union Station, an easy ride away on the CTA Blue Line. Even taking a leisurely-paced long-distance train would be a faster option for many people than waiting for the next available flight, whenever that might be. And some passengers are indeed taking advantage of the train option.
[Amtrak spokeswoman Tracy] Connell says ridership has gone through the roof out of the Chicago area because of all the cancellations at O’Hare Airport. Some of its trains have seen up to a 60 percent boost in riders.
Amtrak has seen a spike in passengers since the flight cancellations began earlier in the week, especially in the Northeast, spokesman Cliff Cole said.
“Our ridership was heavy yesterday, is heavy today and is likely to be heavy tomorrow, based on our reservations,” Cole said Thursday.
Once again, Amtrak is proving its value and relevance by providing redundancy in a fragile transportation system.
--Matthew Melzer
Posted by NARP
Tags: air travel, airlines, amtrak, multimodalism, news media, oil, safety, the daily show,Oil Problems
Monday, April 21, 2008
Since there are occasional claims that current oil prices are not accurately reporting the market, and indeed it is possible that oil could experience another significant price drop short-term, the following information reminds us about long-term realities. And, yes, there would be more production if politics did not prevent modern technology from being applied to the oil industries in many nations, but those political issues are real and don’t show signs of going away.
In yesterday’s Week in Review section in the New York Times, the lead story, “Barreling Along: The Big Thirst,” included this:
Oil prices rose above $116 a barrel last week…"This is the market signaling there is a problem,” said Jan Stuart, global oil economist at UBS, “that there is a growing difficulty to meet demand with new supplies.” …At a recent energy conference, John Hess, the chief executive office of Hess Corporation, the international oil company, warned that an oil crisis was looming if the world didn’t deal with runaway demand and strained supplies…The number of [motor] vehicles in China rose sevenfold between 1990 and 2006, to 37 million…China…is set to overtake the U.S. by around 2015. China could have as many as 400 million vehicles by 2030…The United States is the only major industrialized nation to see its oil consumption surge since the oil shocks of the 1970s and 1980s…
Among several accompanying graphs, one showed these oil consumption changes since 1980: U.S. +21%; U.K. +2%; Japan +0.2%; France -14%; Germany -20%.
Last week, a Russian oil executive suggested he might not live to see the day when Russian oil production would exceed the 2007 level. A decline in production this year would be Russia’s first in ten years. Russia’s first quarter output this year was down 1% from a year ago. Russia is the world’s second largest oil exporter.
Financial Times today reports that Saudi Arabia’s “most powerful policymakers have said [the nation] has put on hold any plans to further increase long-term production capacity from its vast oil fields.” FT said these statements, including one by the king himself, “will harden the view of those skeptics who argue the kingdom is unable to boost production because of the high decline rates at its fields.”
Theories that Saudi oil production has peaked are not new. MSN Money in 2004 ran an article, “Is Saudi Arabia running out of oil?” There is a huge article, “The Breaking Point,” in the NYT Sunday magazine of August 21, 2005, by Peter Maas.
Near the end of his NYT article, Maas wrote:
The most worrisome part of the crisis ahead revolves around a set of statistics from the Energy Information Administration, which is part of the U.S. Department of Energy. The E.I.A. forecast in 2004 that by 2020 Saudi Arabia would produce 18.2 million barrels of oil a day, and that by 2025 it would produce 22.5 million barrels a day. Those estimates were unusual, though. They were not based on secret information about Saudi capacity, but on the projected needs of energy consumers… [Capon note: Today’s FT article quoted above has this from Saudi Arabia’s energy minister: “We are idling at around 9 million barrels per day and we will reach capacity of 12.5m by 2009…As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.” The article goes on to say that International Energy Agency forecasts “reach a different conclusion.”]
More from the end of Maas’s article:
It would be unfair to blame the Saudis alone for failing to warn of whatever shortages or catastrophes might lie ahead. In the political and corporate realms of the oil world, there are few incentives to be forthright. Executives of major oil companies have been reluctant to raise alarms; the mere mention of scarce supplies could alienate the governments that hand out lucrative exploration contracts and also send a message to investors that oil companies, though wildly profitable at the moment, have a Malthusian long-term future. Fortunately, that attitude seems to be beginning to change. Chevron’s ‘’easy oil is over” advertising campaign is an indication that even the boosters of an oil-drenched future are not as bullish as they once were.
--Ross Capon
Posted by NARP
Tags: energy, news media, oil,Oil consumption since 1980: U.S. way up; Europe down
Tuesday, May 06, 2008
To quote again from that April 20 New York Times article, “Barreling Along: The Big Thirst” [the following quote picks up at the end of the quote in Ross Capon’s April 21 blog entry]:
The United States is the only major industrialized nation to see its oil consumption surge since the oil shocks of the 1970s and 1980s. This can partly be explained by the fact that the United States has some of the lowest gasoline prices in the world, the least fuel-efficient cars on the roads, the lowest energy taxes, and the longest daily commutes of any industrialized nation. The result: about a quarter of the world’s oil goes to the United States every day, and of that, more than half goes to its cars and trucks.
An accompanying graphic showed the following changes in oil consumption from 1980 to 2007: Denmark -33%; Sweden -32%; Germany -20%; Switzerland -18%; France and Finland -14%; Italy -13%; Japan +0.2%; U.K. +2%; United States +21%.
Last night, Stephen Colbert addressed the various proposals for a summer holiday on the federal gas tax (see last week’s Hotline) through The Wørd, “proposing” free gas for everyone:
Colbert remarks:
I’m sure you’re asking, folks, “How will we pay for unlimited free gas?” Well, the answer is simple: I don’t care! Besides, have you forgotten about a little thing called ‘our grandkids’? Because they are very generous, even though they don’t know it yet. They can be the generation that walks to work or uses public transportation! They’ll have to, because without a gas tax to pay for infrastructure, there won’t be any roads.
--Matthew Melzer
Posted by NARP
Tags: energy, news media, oil, the colbert report,©2006 National Association of Railroad Passengers | » NARP website
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