Thursday, August 21, 2008

The End of Aviation

As America and the rest of the world struggles to find ways to combat the rapid and huge increases in the price of oil, a commodity the modern world cannot live without, we see all around us efforts to accommodate to the new reality. Conservation efforts, development of renewables, increased efficiencies, the possible opening of drilling areas in ANWR, the Gulf and the Outer Continental Shelf, and new technologies – are all offering modest and incremental steps that we hope will allow us to retain our way of life and our standard of living.

According to a perceptive article in the “New Republic”, however, there is one major aspect of our lives that will change radically – air travel. Many economists are predicting that, no matter what we do, $200 per barrel oil is on the near term horizon, and air travel ceases to be economically feasible somewhere around $135 per barrel, a figure we recently surpassed for a time this winter and spring. Those of us who travel back and forth to Florida have already seen fares double and triple in the last two years.

The End Of Aviation
What will happen when America can't afford to fly?

August 27, 2008 The New Republic (Excerpt)

“As the age of cheap oil comes to a close, it's springtime for gloomy futurists. Visions of a brutish world marked by violent squabbles over dwindling reserves, of junkyards littered with abandoned cars, of suburban slums overrun by weeds, of the collapse of industrial agriculture--none of this sounds as outlandish as it once did. Still, most of these horror stories are likely overstated: Energy experts tend to agree that, with a little ingenuity and a generous helping of political will, we could transition away from fossil fuels without being forced to give up our modern lifestyles.

But there's one big exception--an area where a post-carbon world really could mean a radical shift in the way we live. That's the world of commercial flight.

Early signs of an aviation apocalypse are already upon us. As oil prices flirt with $130 per barrel and the dollar struggles, airlines are paying nearly 80 percent more for fuel than they did a year ago. Twenty-five airlines have gone belly-up this year--three to four times the usual yearly rate. Major carriers like American, Northwest, and United, still reeling from the industry downturn after September 11, go barely a month without announcing layoffs and capacity cuts.

And it gets worse from there. Despite recent fluctuations, a growing number of economists are bracing for oil to hit or surpass $200 per barrel in a few years, and most industry analysts agree with Douglas Runte, of RBS Greenwich Capital, who told The Wall Street Journal in June, "Many airline business models cease to work at $135-a-barrel oil prices." After all, most airlines barely figured out how to be profitable in a world of low fuel costs. Jeff Rubin, chief economist of Canadian investment bank CIBC World Markets, has predicted that gasoline will hit $7 per gallon by 2010, forcing some 10 million cars in the United States off the road. If that happens, he told me, "You're going to see an even bigger exit in the airline industry."” The New Republic

This is a long article that covers many aspects of how life would change radically with the death of low-cost air travel – the rise of trains, the end of air freight, changing vacation and immigration patterns, the death of small cities, rising unemployment as industries die and new ones appear. As always, there will also be opportunities for those who anticipate trends and act to exploit them.

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