Richard's blog

Gloomy times ahead for troubled airlines: Ryanair announced today that it's going to have to raise prices to cover fuel prices. It's also expecting to ground 10% of its fleet over the winter. If I was prone to anthrompomorphism I'd be talking about the planet heaving a sigh of relief.

Meanwhile BA is considering the budget model - charging for food, check-in and sick bags - again because of rising oil prices. Aviation fuel is skyrocketing, caused partly by a decade or two of unrepressed demand. All those nonsense flights to places you can't spell have sucked up a good deal of oil, and oil producers can't refine it fast enough to satisfy everyone.

Of course any sensible government might take this as a good time to drop their plans to expand Heathrow (and every other airport, just about). After all, with prices rising demand for flights will fall, and that kind of negates the need to turn an ancient village into a runway. So the industry turns to it's figure heads - in this case IATA Director General Giovanni
Bisignani, who slated the UK's airports infrastructure at the annual IATA piss-up. "This year's Worst Regulator Award goes to the UK Civil Aviation Authority (CAA). Look at Heathrow. Service levels are a national embarrassment." Oh well, if he say's it's terrible we'd better expand, eh?

Call me a softy, but I'm starting to feel sorry for the aviation industry. Last weekend we learnt that one airline a week is going out of business in the US, while oil prices have forced Australian flagship Quantus to ground some of its fleet. Then came the cherry on the cake: BAA, the UK's least popular airport owner, made a loss of £62 million in the first three months of 2008.

Quick to rustle up an excuse, the Heathrow bosses blamed the fiasco at T5, although seeing as this was entirely their fault, is a bit like saying "we're broke because we're crap" - not an excuse, but a reason. Apparently they were so determined to get the opening right that they spent £24 million on security and the like - presumably to keep out the scruffy protesters who flash mobbed them.

Sadly this loss just makes their selling Gatwick or Stansted all the more likely, increasing competition between airports and, as the Competition Commission made clear, increasing the calls for unbridled airport expansion - although if BAA keep losing money like this, they'll have to scale back their plans to bury Sipson under the tarmac...

Anyone else feel like we're balanced on the edge of a cliff right now, looking down? The head of British Airways, Willie Walsh, seems to, predicting rising oil prices will bring about the end of the 'cheap' flight extravaganza. Yesterday oil hit $135 / barrel, promoting Ministers to utter the word "crisis" in muted tones around the corridors of Whitehall.

Meanwhile aviation fuel is at $1,350 / tonne and rising, and US flagship American Airlines has started charging customers for breathing (well, for checking in luggage and stuff). Back in Blighty airline CEOs are studying bottom lines as never before, trying to squeeze those margins ever tighter. Self-appointed experts predict that we could be seeing bankrupt carriers by the end of the year, and profit warnings from many others.

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...

The longer you campaign on transport issues, the more you find yourself tiptoeing around the ugly face of peak oil. Hailed by advocates as the best thing since the bread slicer, peak oil is the point at which oil supply peaks and begins to taper off, pushing prices higher and higher until economic forces demand a shift to alternative energy sources.

This might sound like great news to those campaigning against the fossil fuels economy, but it’s a poisoned chalice for a number of reasons. Firstly, rising oil prices make more polluting sources of energy (such as coal) very attractive – well before green energy like solar or wind becomes economically viable. Extracting oil from tar sands – incredibly ecologically destructive – is uneconomical when prices are low, but as they climb higher then wholesale investment becomes very attractive indeed.

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!

As anyone who watches daytime TV will know, debt refinancing is big business. There are millions of companies out there who will loan you money to pay off your existing debts, hiking up the interest rate as they go. Normally it's cash-strapped homeowners with their lives in hock who these loan sharks target, but now it's BAA's turn to suffer as it tries to persuade someone to lend it lots and lots of money.

Financial pundits from investment houses and other rarefied places speculate as to whether the owner of 7 of the UK's airports has any chance of sorting out its debts. Ferrovial took on £10 billion worth of debt to buy BAA last year, and now those money turkeys are coming home to roost. Going cap in hand to its shareholders raised £500 million (far more than Plane Stupid could raise, I assure you!) but even that can't save the ailing company. Now hacks are speculating that if BAA cannot sort its finances out in the next two months, bondholders will be able to take their £3 billion investment back, potentially bankrupting the company.

Amusingly the credit crunch is now being blamed for BAA's problems. Seems there's nothing we can't blame on those irresponsible sub-prime lenders, eh?

At the end of this month thousands of people are gathering at Hatton Cross to oppose the third runway and airport expansion. We'll be there of course, but the marchers might have a very special guest: rumour has it that God will be joining them.

OK, so maybe that's an exaggeration: God may or may not be there (it is, admittedly, hard to tell), but the Archbishop of Canterbury has given his backing for the demonstration, sending a letter of support to be read out during the rally. The Archbishop's spokesman told the Evening Standard: "He acknowledges the strength of support (against a third runway). He is aware of the problems encountered by churches on the ground across London. He is trying not to fly if he can help it. He has not flown at all this year."

As Bob Dylan explained back in 1964, having God on your side does make things a bit easier. Flippancy aside, the coalition of the unlikely is growing stronger and broader every day. Even the Evening Standard, voice of conservative capitalism, has switched sides, with a recent editorial opposing expansion. Ruth Kelly, Secretary of State for Transport, is well known as to be deeply religious. Will the Archbishop's support for the campaign sway her?