One incredible statistic leapt from the page of easyJet CEO Andy Harrison”s statement last week which accompanied news of his airline”s sizeable half-year losses ” that the price of jet fuel is now 80% higher than last year.
Considering fuel is such a large part of carriers” costs ” say, nearly half - that”s potentially crippling. If the price of flour shot up 80%, bread makers worldwide would be swept away like crumbs. And considering that the global airline industry barely breaks even anyhow, it”s particularly incendiary - and low and behold carriers are collapsing. As Harrison said of his smaller competitors, they will likely ”disappear.”
Opec has even warned the price of crude could reach $200, and the threat to aviation is being compared to the twin towers attacks.
”The worst economic shock since 9/11, and, possibly, one that is worse,” said Air Transport Association president and CEO Jim May of the soaring prices.
It”s a bitter pill that, just as all carriers are allowed to muscle in on the much-prized transatlantic market under Open Skies, the price of fuelling such a flight now tops $40,000.
But how does the problem filter down to the traveller booking his/her flight online, or the travel buyer deciding how to get delegates to a conference? It will start warping air travel into strange new shapes. The business-only model has come under severe pressure and Eos recently cracked, but how many larger carriers have sustainable models if oil creeps past $120 a barrel?
The first impact is simple ” costs are always passed on to travellers, and ticket prices will rise. They already are. Most major US carriers have slapped a price on checking in a second bag - the kind of measure usually associated with the low-costs - while raising fares by between 3%-5%. British Airways (BA) passengers on long haul flights lasting more than nine hours now pay ”79 each way fuel surcharge, a ”15 hike issued a fortnight ago. Many others have similarly spiked prices.
The other effect which people will start to notice is more crowded aircraft, because airlines will combat the problem in the only other way they can and simply ground parts of their fleets, cutting capacity. Passengers will be able to choose from fewer daily flights, perhaps have to travel at less convenient times, and be squashed between neighbouring passengers in a full row of seats.
The Association of Corporate Travel Executives (ACTE) is worried. In response to the problem, it has joined the US Consumer Energy Alliance, and will represent the buyer segment of air transport at a special ”Energy Day” summit later this month. As well as numerous airlines going broke around the world, it says more than 4,000 flight reductions have been recommended by industry analysts.
”The recent swift and steep increases in energy prices are pushing ticket prices higher, and this will likely continue through the end of the summer,” said ACTE president Richard Crum. ”The portion of a passenger”s airline ticket needed to pay for fuel has risen from 15% to nearly 40%, resulting in substantial charges to the corporate consumer.”
These increases inevitably have a detrimental effect on travel and linked industries such as the hospitality and car rental sectors.
Companies which are trying to tighten travel budgets and travel bookers who are asked to minimise costs will find all of this makes life much harder. Crum cites reports showing nearly half of travellers (44%) and US companies (42%) are planning to cut back on travel this summer.
However, there is a view corporations will continue to require that their employees travel as it is an essential element to building business and indeed simply running it. A Barclaycard Business Travel Survey of 3,000 corporate travellers released last month showed that 44% travelled more in 2007 than had done the previous year, and that a third planned to travel even more this year.
But aye, here”s the rub ” fewer trips from the UK are being taken using Business Class, and more in Economy or even on budget carriers. In 2001 nearly half said they would usually fly Business, and six years later that figure has shrivelled to 11%. Amazingly, the favoured airlines for work trips after BA (28%) were easyJet (15%) and Ryanair (8%).
The budgets cannot raise ticket prices ” that would cause them to ”disappear” because they would no longer be low-cost ” so they hike prices for ancillary services instead.
Ryanair recently increased charges just to check-in at the airport instead of online, as well as the cost of putting bags in the hold ” that privilege will now set you back ”16 return for each piece of luggage. If you”re a business traveller with just a laptop on a day trip you might be able to travel light, but if you need a change of clothes with you, you could be ” like the hold-all you”re told you can”t take on as hand luggage - stuffed.
EasyJet now charges to check in bags too, the key element in nearly doubling its ancillary revenues because 75% of passengers have continued to take luggage ” what a surprise! It”s quite important, after all.
So, in this topsy-turvy travel turbulence we”re hitting, don”t be surprised next time you go on a cheap holiday to see suits surrounding you on the plane.
Next year there may be 20% less flights to choose from too, and airline cutbacks could mean some smaller destinations - which have been well-connected internationally - become less appealing as host conference venues.
Open Skies was meant to introduce more competition on the all-important transatlantic business routes, but ticket price wars will be thoroughly tested if the crude oil cost maintains its vertical creep, and even businesses ” particularly SMEs one imagines ” have limits on how much they will pay for travel.