23 March 2012

Congratulations, Environmentalists


Emirates, the biggest airline by international traffic, said more carriers will go bust this year as fuel costs and sluggish economies undermine profitability.
“We can reel off a whole load of airlines that are teetering on the brink or are really gone,” Tim Clark, the Dubai-based carrier’s president, said in an interview. “Roll this forward to Christmas, another eight or nine months, and we’re going to see this industry in serious trouble.”
Airline profits will plunge 62 percent in 2012 to $3 billion, equal to a 0.5 percent margin on sales, as oil prices rise, the International Air Transport Association said this week. Emirates’s fuel bill accounts for 45 percent of costs and may jump by an “incredibly challenging” $1.7 billion in the year ending March 31, according to Clark, who says he’s sticking with a no-hedging strategy rather than risking a losing bet.

There are some environmentalists who aren’t completely economically retarded, and thus have recognized that one way to reduce consumption of a good that releases CO2 into the air is to raise the price.  Some have even suggested using gasoline excise taxes as a way of essentially reducing the consumption of gas.  This is practically what will happen with air travel, as higher gas prices will reduce consumption and/or profit margin, leading to the bankruptcy of several airlines.  (Of course, this means that there will be fewer people buying a get-out-of-unconstitutional-patdowns-free card.)

I’m not entirely sure what’s all at play in rising airline fuel prices, but I’m going to assume that regulation plays a huge role.  It’s omnipresent throughout the entire process of turning crude oil into jet fuel, including drilling regulations, transport regulations, refinement regulations, and so forth.  I can’t imagine that US inflation helps, since it is still the world’s reserve currency, and seeing as how all the other major players are inflating their currencies, as well as some of the minor players, it doesn’t look like the nominal price of jet fuel will be coming down soon.

At any rate, it looks like the environmentalists have pretty much won this battle, with everyone being worse off as a result.  Gaia demands sacrifice, after all. She’ll probably demand the sacrifice of cars next.

2 comments:

  1. I don't think that regulation is to blame.

    http://www.indexmundi.com/commodities/?commodity=jet-fuel&months=120

    Were regulations really increasing so dramatically through the 2002-2008 period (peaking in mid 2008)?

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  2. @Greg- Don't forget that which is unseen. We don't know how production of jet fuel (or how much crude would be brought to surface, for that matter) in the absence of regulations. Remember, regulations, by their nature, have a preventative effect, so the number of regulations don't have to increase in a given period of time in order for the effects of the regulation to increase.

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