Economic Turbulence in the Friendly Skies!

By Laura Knoy on Friday, June 20, 2008.

With the price of jet fuel soaring, the world’s airlines are struggling to stay competitive. They’re raising fares, cutting service, reducing speed, and even charging for that soft drink, bag of peanuts, and checked-in luggage. We’ll look at the state of the airline industry and how much you may shell out the next time you fly.

Guests

  • Tom Malafronte, Assistant Airport Director for Air Service Development and Marketing at Manchester-Boston Regional Airport
  • David Field , Americas Editor of the London-based magazine Airline Business
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Air vs. rail
Rick Morrison - Fri, 06/20/2008 - 09:50

Listening to some of your callers, they would like more rail service. I work in the mass transit business. It costs 25 million dollars per mile to put rail service where no right of way currently exists.

I cannot imagine a political climate in NH that would advocate such spending. The west coast is very progressive in this area, and the older cities on the east coast.

It takes federal support to do these projects.

Air transportation isn't as inefficient as David thinks
Mike from Hudson - Fri, 06/20/2008 - 21:16

When I heard the Exchange this morning I almost spilled my coffee: David said it takes 895 Gallons to operate an airliner hourly -fine; and then branded this as inefficient. Unfortunately Laura didn't question that statement, but I beg to disagree.
David's back-of-the-envelope calculations stopped too early:
With 150 passengers, this 895 gph computes to just about 6 gallons per seat per hour.

I don't know about your car, but mine does no more than 25 or so miles to the gallon.
The airliner will span some 400 miles in that hour at said 6 gallons per seat. In my book that's a mileage of about 67 miles per gallon -
corresponding to the milage about 10% BETTER than a Prius driving with a tailwind.
How can you possibly call this inefficient? And that's using your numbers on some old Boeing plane; and the numbers on newer Airbus types are lower. What am I missing, David? -

I would rather suggest that the (American) airline industry is about as badly managed as the American car industry is. As was pointed out during the broadcast, clever management has hedged gasoline. Southwest is one example, Lufthansa is another. Where were all the other airline's managements on that subject? They decided to gamble - and lost.

So let's just stop shedding tears about badly managed airlines getting caught with their pants down. You touched briefly on this with the mentioning of excessive executive pay. As Vanguard's John Bogle pointed out such excess pay is usually a pretty good predictor of lousy overall company returns to their shareholders.

So,perhaps it is best for us if some of the US airlines just close their doors. In a true market economy without governmental distortion of market forces this would be the normal thing to expect and thus should be allowed to happen when the market eliminates inefficient companies from the pool and reallocates their capital.

Mick

efficiency
J Pittman - Sat, 06/21/2008 - 12:38

Mick - I was wondering the same thing yesterday - I found this set of tables: http://strickland.ca/efficiency.html - 'typical' efficiency is a few charts down.

efficiency
Mike from Hudson - Mon, 06/23/2008 - 10:10

Hello J Pittman,
thank you for this wonderful link to data. I found the entry for an Airbus 320 leading the bigger commercial air crafts at about 70 mpg, or about 15% better than the example of a 737. And that's at the 25% or so of its flying range used in the table. Long-haul will yield even better mileage.

I can't help it: This whole discussion about the needy airlines, the to-be-pittied US auto makers, suggested drilling in restricted areas and the ensuing panic fanned by the media in general all looks rather purposefully engineered to me.
The current US government certainly hasn't lifted a finger to act on the causes of this crisis, let alone used its vast resources to prevent it ahead of time. It feels like everyone is rather happy this came about just in time to twist the public's arm enough to bamboozle us into some regrettable, but for the contenders rather profitable motions before the conservative window of opportunity in D.C. closes for a while.
It's just disgusting to witness this machinery in action yet another time.

Oak Ridge on efficiency
J Pittman - Sun, 06/22/2008 - 06:26

From a NYT article on Amtrack:
"Amtrak can move a passenger a mile with 17.4 percent less fuel than a passenger car can, and about 32.9 percent less than an airline can, according to the Oak Ridge National Laboratory."

Also, regarding "In a true market economy without governmental distortion of market forces" - I don't think there's any piece of the transportation sector that does not see (an I might argue, need) significant government involvement. I agree that many airlines are so poorly managed that shuttering them looks like an attractive alternative.

efficiency
Mike from Hudson - Mon, 06/23/2008 - 10:25

I agree, a contemporary rail system would go a long way in making this country more efficient in energy use. For distances of 300-400 miles ahigh-speed system as existing in France, Germany or Japan for example, is quicker and more efficient than either flying or driving. Unfortunately, the current Amtrack is quite a joke compared to these systems, I am afraid. For such technology their rails and equipment need to be replaced whole sale. And, not surprisingly, there isn't currently any domestic source for the technology to replace that. -

For my taste this whole discussion is still often naive and in its infancy. Although it pains me to see low-income people being squeezed to the blood I do greet the wake-up call that is, with a 15 year delay, is finally reaching the public in this country. Europe had this energy efficiency discussion in the mid 80ies and companies have responded. Over here, it seems, big business was mainly busying themselves to make sure their gravy train wasn't interrupted by future-oriented policy decisions from the respective rulers at hand. The pain that could have been managed over a longer time no gushes in all at once, and will perhaps continue to trigger mostly reflexive responses. But I still hope for a lasting impact that alters our course from here.