Features

Focus: Oil prices

19 Jun 2008 by Alex McWhirter

As oil prices hit new highs, airline savings may come at the expense of travellers. Alex McWhirter investigates.

Should oil remain at US$130 a barrel then the world’s airlines will collectively lose £3 billion this year. That was the stark message from IATA’s director general Giovanni Bisignani at the trade body’s annual meeting in Istanbul at the end of May. “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 online booking has also saved them huge sums. Bisignani says: “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. Paul Charles, director of communications, says the carrier’s fuel bill has doubled over the past three years. It’s now approaching £1 billion for 2008 alone.

The full picture of the industry’s woes has yet to emerge because a lot of people have bought tickets in advance. But cutbacks are already occurring on US routes, where the weak economy and the credit crunch are 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, travellers can expect to see several more changes in the airline industry, including: airlines going out of business because the price of oil is eliminating their profits; existing carriers grounding planes and tailoring capacity to demand, which in turn might lead to higher fares (depending on the route, level of demand etc); cutting of routes and consolidating of flights. 

The time-saving convenience of some carriers’ ultra non-stop long-haul routes (those with flight times in excess of 14 hours) may also be lost because on very long flights airlines burn fuel just to carry fuel. Thai’s Bangkok-New York (17hr 30min) 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 – following the 2001 travel downturn, BA saved cash by delaying the fitting of its Club World flat beds. In addition, 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 also equates to fewer seats, which means higher fuel consumption per passenger.

Worryingly, if it wasn’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.

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 eight-across seating, but some airlines are looking at installing nine-across layouts.

The A350 (scheduled for 2013), which has a wider cabin, was supposed to be nine-across but Airbus now proposes a ten-across version, while 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 in-flight reading material might be cut or even disappear from planes with good IFE. At least one US carrier is cutting back on in-flight 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, while BA says it has cut the amount of “tap water” on board because passengers prefer the bottled equivalent.

If the price of oil keeps rising, air travel could look very different a year from now.

Taking precautions

With the airline industry in crisis, business travellers are getting nervous. Here are a few tips on avoiding the worst impacts of rising fuel prices:

  • 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 includes airlines trading under Chapter 11 bankruptcy. If booking direct in the UK, pay with a UK-issued credit card because you are covered for sums of £100 or more under the 1974 Consumer Credit Act. (Protection for cards issued elsewhere may vary – check with your card issuer.) Firms like Amex or Diners are not bound by the 1974 Act, but in practice most 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 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 a laptop when away from home.

  • Check your frequent flyer programmes (FFPs) and consider redeeming outstanding miles or points in case of airline failure. Remember that schedule changes may affect the opportunity to redeem miles or points.

  • Keep updated by reading Business Traveller and businesstraveller.com.


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