Despite my last post on peak oil (and why we shouldn't rely on it) rising oil prices do impact transport and aviation growth. With oil currently hovering around the $128 / barrel mark, and widely predicted to hit $150 or even $200 / barrel by the end of the year, airlines are having to up their prices to avoid bankruptcy.

With no tax on aviation fuel the industry has no buffer zone: every dollar hike is another dollar that needs to be squeezed out of ever tighter margins. This weekend Richard Branson joined the doom-and-gloomers, predicting $200 / barrel oil in the very near future. Meanwhile BA is planning to ground planes because of rising fuel costs. The American market is widely tipped to implode if prices keep rising, and the British outlook is not so rosy either.

Meanwhile the government wants to expand airports all over the place, because demand for flights will keep going up - even if there's no airlines left to supply them. They claim that demand is inelastic - i.e. that it will remain constant no matter how hard it is stretched by rising prices. A Parliamentary Question last week showed the cause of their market-defying confidence: the government's modellers are working on the assumption that by 2010, oil will have rised to... $65 dollars a barrel. By 2020, the government is assuming that oil will have reached the staggering price of $75 / barrel. No wonder they think people will keep flying regardless...

Last week the Sunday Times carried an editorial by the former head of British Airways, Bob Ayling, in which he called the third runway a "costly mistake". He argued that the government's attempts to impose a 'hub-and-spoke' model onto the UK's airports was outmoded thinking, based on a disproven theory of air traffic control which almost bankrupted the American airlines which first tried it.

This week the Times has revealed just how damaging the hub-and-spoke model really is. Not only does it force people to fly further than they need to by routing them all through Heathrow instead of flying direct, but the number of international transfer passengers is rising so fast that they will take up most of the new capacity from the third runway by the time it opens in 2020 - and all of it by 2030!