Rising oil pushes carriers into the red

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...