Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.It is a pretty nasty cycle we are seeing with the airlines. The higher fuel costs have led to higher tickets prices and extra fees. These higher prices have led to less air traffic, and that has led to an even greater need to find more ways to cover rising costs. Definitely a tough situation.
The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.
A few years back, when oil was still "cheap," long distance flights seemed to be the next big thing for airlines. The math definitely made sense. By offering travelers the chance to fly non-stop to their final destinations, airlines were able to tack on anywhere up to an extra 20% on their tickets, and consumers were ready and able to absorb the extra costs in exchange for the luxury of not having to make connections, endure long waits in airports for their connections, and have to wonder if their luggage would make it on time. Well, times have changed, and consumers are tightening their belts. Now there is a shift to lower-priced tickets, and consumers are willing to endure a bit of hardship in order to save a few dollars.
We have to look at it from the airlines point of view as well. With fuel prices going up, the math on long distance flights is just not adding up anymore. For flights that are in excess of 15 hours, airplanes use more fuel per mile per customer, but the added costs are not proportionate with the additional cost of the tickets. A losing situation all around. If you consider that airlines are having a tough time breaking even on their shorter flights, you start to see just how hard they are getting hit on the longer flights that they have been offering.
The solution? Simple: cut the long distance flights. This is the trend we are seeing now, and probably one that will expand as time goes on.
Let's look at a couple examples of what we are talking about:
- US Airways (NYSE: LCC) group gained approval last week to postpone the start of a 13 hour flight from Philadelphia to Beijing;
- Northwest (NYSE: NWA) was given permission last week to suspend its seven times a week cargo flight between the U.S. and China;
- Earlier this year United (NASDAQ: UAUA) was allowed to postpone flights from San-Fransisco to China;
- Thai Airways International has decided to put an end to its 17-hour Bangkok-New York route, and reduce Bangkok-Los Angeles flights. This move will result in Thai selling its Airbus super-long-haul jetliners.
The bottom line is that the current energy situation is definitely reshaping the way everyone does business, and in the end, will influence the way you travel. While the long distance air flight segment is a small niche for travelers, it is yet another warning sign that things are getting serious, and air travel as you know it may be changed forever.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
7-08-2008 @ 3:56PM
Chilla said...
Please explain why the cost per passenger mile is higher on long vs. short flights.
7-08-2008 @ 6:16PM
Chris said...
Michael,
The economics behind the airlines actions are a little different than you concluded.
It's actually cheaper (lower cost, if you look a fuel per passenger-mile), to fly a long haul route, point-to-point, on a big jet (like a 777ER or A330), than it is to make two flights via a hub and spoke system on smaller jets.
There are a few things that may make "Very Long Haul" (> 6,000 nautical miles) routes costly for airlines. 1) New routes: new routes take time for the demand to develop and therefore become profitable. Airlines may allow up to three years for a route to fully develop. They can't wait that long right now, though, so new routes, or recent routes are subject to closing. 2) Old Jets: Some of these VLH routes are served by older 4-engine jets, namely the 747-400 and the A340. The A340's are very inefficient when compared to the 777ER's, and the 747-400 is also less efficient than the twins. 3) Demand: some long haul routes just won't have enough demand with tickets at the higher prices to justify putting a wide body on the route. A fuel efficient wide-body with empty seats is no longer fuel efficient.
Cheers,
Chris
7-08-2008 @ 7:03PM
Kent said...
Gone will be the days of single airline flights to distant destinations I can see. Multiple airline flights will be a headache unless they reach agreements to handle transit passengers for no recheck-in's and final destination baggage handling.