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Special Report: How the soaring cost of oil is changing the way we fly

Published: 04/06/2008 - Filed under: News »

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Should oil remain at $130 a barrel then the world’s main airlines will collectively lose GBP3 billion this year. That was the stark message from IATA’s director general Giovanni Bisignani in Istanbul this week at the trade body’s annual meeting. “Oil is changing everything. There are no easy answers,” he claims.

The airlines are worried sick. Normally in tricky times they would make their usual staff cuts or office closures to save money. But this time round there’s nothing left to cut.

Staff have been slimmed back, town centre offices shut and even entire country offices eliminated. No longer do airlines face the expense of paying commission to travel agents while the move towards simplified electronic ticketing and direct online booking has also saved them huge sums.

Notes Bisignani, “There is no fat left [to cut]. To survive this crisis even more massive changes will be needed.”

An example of how much even smaller carriers have been affected comes from Virgin Atlantic.  The airline’s Director of Communications Paul Charles told Business Traveller that the carrier’s fuel bill has doubled over the past three years. It’s now approaching GBP1 billion for 2008 alone.

The full picture of the industry’s woes has yet to emerge because a lot of people have already bought tickets.  But cutbacks are already occurring on US routes where the weak US economy and the credit crunch is discouraging travel.

The big US carriers are hit again because they operate fleets of older, less fuel-efficient planes. Fuel accounts for 50 per cent of their total costs compared with around 30 per cent at efficient non-US carriers.  That is why the likes of American, United, Delta and US Air have been the first to slash flights and routes and add charges for services which used to be free.

If oil remains at the current high prices in the coming months, travellers can expect to be faced with these scenarios:

• Airlines going out of business because the price of oil is eliminating their profits. It’s already started and it will continue.
• Existing carriers grounding planes and tailoring capacity to demand which in turn might lead to higher fares depending on the route, level of demand and so on.
• Cutting of routes and consolidating of flights. Does BA really need to fly so many large planes every day between Heathrow and New York?
• The time-saving convenience of some carriers’ ultra non-stop long-haul routes (those with flight times in excess of 14 hours) may be lost because the price of oil can make these services uneconomical. On very long flights airlines end up burning fuel just to carry fuel.  Thai’s 17 hr 30 min Bangkok-New York run has just been threatened with closure (see online news June 3).
• More airlines may begin to charge for meals, for baggage checking and even for seat selection. On US domestic routes, American will soon charge for every piece of checked baggage while US Air now charges more if you want a window or aisle seat.
• Plans to enhance service and introduce new premium seating may be put on the back burner. Remember that following the 2001 travel downturn BA saved cash by delaying the fitting of its Club World flat beds.
• The era of getting ever bigger seats and increased space in first and business class may be over. That’s because bigger seats weigh more which in turn leads to increased fuel burn. More space equates to fewer seats which means higher fuel consumption per passenger.
• Worryingly, if matters weren’t already cramped enough in the back of the plane, it appears that conditions will deteriorate further.  To keep fares affordable we will see carriers cramming in even more seats. Air France and KLM are following the lead set by Emirates and are reconfiguring their B777s with a 10-across layout. Other carriers may follow when it’s time to renew their seating. And now the next generation of wide-bodied planes from Boeing (the B787 Dreamliner) and Airbus (A350) are also set to go down the same route. Originally the B787 (set to enter service around 2010) was proposed with 8-across seating but some airlines are looking at installing denser 9-across layouts.  The A350 (scheduled for 2013) which has a wider cabin, was supposed to be 9-across but Airbus now proposes a 10-across version for those airlines wanting to cut costs. If that wasn’t enough, a new staggered seat design from Thompson (thompsonsolutions.co.uk) would allow airlines to add a further 15 per cent capacity to existing aircraft.
• The drive to cut weight from the cabin means that in-flight reading material might be cut or even disappear from planes fitted with good IFE systems. At least one US carrier is cutting back on inflight magazines. Virgin Atlantic has a “weight watchers” programme which, says Paul Charles, covers a range of things from lighter seats to lighter meal trays in economy class. To save weight British Airways says it has cut the amount of “tap water” kept on board because passengers prefer the bottled equivalent.

How can passengers minimise any inconvenience?

• To cover against airline failure take out the relevant insurance or book through a travel agent which offers insurance against airline failure. Make sure this cover will include airlines trading under Chapter 11 bankruptcy.  If booking direct in the UK then pay with a UK-issued credit card because you are covered for sums of £100 or more under section 75 of the 1974 consumer credit act. Note that protection for cards issued elsewhere may vary. If in doubt check with your card issuer. Credit card firms like Amex or Diners are not bound by the UK’s 1974 CCA but in practise most firms will make a refund for the sake of goodwill.
• With airlines cutting and amending flights and routes almost on a daily basis, it’s essential for travellers to recheck their schedules especially when they book more than several weeks ahead. In the old days, when most tickets were booked through agents, it was the latter’s responsibility to alert their clients. Today’s trend towards online self-booking means that the passenger him- or herself takes on that responsibility. Airlines say they automatically alert online booking passengers of schedule changes by email. But reader feedback tells us that some emails end up unread in the spam bin while not every traveller carries around a laptop when away from home.

Report by Alex McWhirter

COMMENTS » 

FrequentTraveller - 05/06/2008 08:36

If the traditional airlines bring in further additional charges for things like airport check-in or hold baggage then they are following a very risky long term strategy. They will be reducing their level of service to the consumer. Reducing the service level difference between themselves and the so called low cost carriers. So when it comes to consumer choice there will be the option between high price with low service and low price with low service. That strategy would only drive traditional airline customers to the low cost carriers.

TiMorley65 - 05/06/2008 15:45

Airlines are complaining about the price of oil. I was under the impression that these rises were payed for by passengers in the form of fuel surcharges. Is this not the case.

rchonburi99 - 06/06/2008 02:31

I can accept charging for "services" since for those that do not require or want them, they realize a savings and are not being charged for things they do not use. Even though it is a wild departure from what we are accustomed to, paying for a bag, a meal, or even reserving a particular seat, etc.... it is a choice the passenger can make.

Charging for services should enable the airlines to keep basic fares slightly lower, or realize some additional revenue perhaps.

And the obvious flip of that is if I do not choose to pay those fees, and another carrier does not charge them, I move my business.

While US carriers might be hurting slightly more that some other countries due to the dollar now, all carriers are impacted by fuel costs -- yet many have just the last week or two reported huge profits, some even record or near record. The US carriers are hiding behind the fuel crisis and have not addressed their basic business issues -- high labor costs, over capacity, non-profitable routes being kept for the sake of keeping them.

I would love to see an MBA project where the 'business trained students..even with little experience"... analyze the airline industry in the US.

MarkRoberts - 11/06/2008 08:22

Today the worlds economists are predicting that fuel could increase, (as per barrell of oil) to up to £250 within 18 months!!!

If this really does happen, then i am sure many airlines will go to the wall, especially the poor EU ones. Business Travellers & their Expenses will be more strictly controlled, & the smaller market of those choosing premium classes for longer trips or holidays in more comfort, these of the Middle England, will reign in the budgets.

Already fares down to Australia have doubled in 18 months from LHR-SYD in C class for eg...it makes you think carefully when choosing & travelling for personal reasons, or in greater comfort for a holiday...!

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