Massive overcapacity looming?
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Massive overcapacity looming?
Not sure if this is the correct forum but I guess it could "affect our jobs or lives as professional pilots" so I've put it here even though the title has a question mark 
.
While the aviation industry is buzzing along quite happily at the moment is it possible that it is standing at the top of an almighty great cliff. Airlines like EZ and FR are adding more and more capacity to cope with the current increasing demand. Lets say that fuel is taxed next year or the year after, we'll see fares rise (because they'll have to in order to breakeven) and demand drop because passengers, while they are happy to fly to 'monsterzurlichstanhaven' for £15 today won't be prepared to go there if it costs them £50. Perhaps aviation will be pushed into this emissions trading whatsit and fares will go up, demand will go down.
What I'm getting at is are FR and friends making a big big mistake by relentlessly adding capacity to a booming market that is, sooner or later (later being due to rising oil prices) going to burst. I note that Southwest and JetBlue over the pond are being a little more restrained in there capacity additions with JB delaying some new deliveries and getting rid of some older aircraft.
Your thoughts?
. While the aviation industry is buzzing along quite happily at the moment is it possible that it is standing at the top of an almighty great cliff. Airlines like EZ and FR are adding more and more capacity to cope with the current increasing demand. Lets say that fuel is taxed next year or the year after, we'll see fares rise (because they'll have to in order to breakeven) and demand drop because passengers, while they are happy to fly to 'monsterzurlichstanhaven' for £15 today won't be prepared to go there if it costs them £50. Perhaps aviation will be pushed into this emissions trading whatsit and fares will go up, demand will go down.
What I'm getting at is are FR and friends making a big big mistake by relentlessly adding capacity to a booming market that is, sooner or later (later being due to rising oil prices) going to burst. I note that Southwest and JetBlue over the pond are being a little more restrained in there capacity additions with JB delaying some new deliveries and getting rid of some older aircraft.
Your thoughts?
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Slavedriver,
Whilst agreeing with your sentiments almost entirely, I suspect that looming 'green taxes' are the least of the problem. The raw oil price itself is the problem. The cry "oil is running out" is overused, but the fact that cheap-to-recover oil has already run out is scarcely recognised. Industrial nations are in denial. Peak production has passed in the world's key oilfields; demand from developing nations is soaring just as supply is tapering off. New large-scale discoveries are extremely rare.
Supply and demand alone are sufficient to keep oil-prices on an upward trend for the next decade, notwithstanding the short-term price pullbacks common to all secular bull markets. Throw in the likelihood of instability in key producing states (Iran, Iraq, Venezuela, Nigeria and the Stans) and periodic surges to oil at US$200bbl can become reality. Well-managed airlines should be gearing themselves towards this possibility now, because when crisis bites the airline industry is more exposed than most and has fewer friends amongst politicians keen to parade 'green' credentials.
I have been telling all my friends to use the cheap fares NOW; don't put off the opportunity to enjoy budget short breaks. Five years ago, Manchester to Central Europe flights usually came in at £200+. In five years time (and maybe much sooner) they will again. Do your travelling now, or spend many years regretting having missed the opportunities provided by this golden age of unsustainable bargain airfares.
Cheers, SHED.
Whilst agreeing with your sentiments almost entirely, I suspect that looming 'green taxes' are the least of the problem. The raw oil price itself is the problem. The cry "oil is running out" is overused, but the fact that cheap-to-recover oil has already run out is scarcely recognised. Industrial nations are in denial. Peak production has passed in the world's key oilfields; demand from developing nations is soaring just as supply is tapering off. New large-scale discoveries are extremely rare.
Supply and demand alone are sufficient to keep oil-prices on an upward trend for the next decade, notwithstanding the short-term price pullbacks common to all secular bull markets. Throw in the likelihood of instability in key producing states (Iran, Iraq, Venezuela, Nigeria and the Stans) and periodic surges to oil at US$200bbl can become reality. Well-managed airlines should be gearing themselves towards this possibility now, because when crisis bites the airline industry is more exposed than most and has fewer friends amongst politicians keen to parade 'green' credentials.
I have been telling all my friends to use the cheap fares NOW; don't put off the opportunity to enjoy budget short breaks. Five years ago, Manchester to Central Europe flights usually came in at £200+. In five years time (and maybe much sooner) they will again. Do your travelling now, or spend many years regretting having missed the opportunities provided by this golden age of unsustainable bargain airfares.
Cheers, SHED.
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Both comments spot on. It is certain that there must be a 'green tax' and if inflation should kick in then the future does not look so rosy. Most analysts agree that there are too many seats and in the UK there is a clear down turn in US visitors. I believe 'Flight' quoted recently that there are 8000 seats daily to JFK from LHR & LGW, that is some challenge to keep them filled. Time to sell my BA shares?
Originally Posted by Shed-on-a-Pole
The cry "oil is running out" is overused
Unfortunately that last sentence is too long for the media and the politicians, so it has to be condensed to "oil running out". Three words, seemingly as much as 50% of the population can cope with.
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I agree totally.
Anybody thinking of joining the property purchase bandwaggon in Spain (or wherever), on the basis of cheap travel to and from their holiday home. They really need to think carefully now and those with rental properties are going to find it harder to let.
Anybody thinking of joining the property purchase bandwaggon in Spain (or wherever), on the basis of cheap travel to and from their holiday home. They really need to think carefully now and those with rental properties are going to find it harder to let.
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I can see it now, vast yellow fields of oilseed rape surrounding Stansted, lots of farms delivering their yearly crop to messrs Branson and MOLs alternative fuel refinery and the passing 737s smelling like the local chippy !
I can see it now, vast yellow fields of oilseed rape surrounding Stansted, lots of farms delivering their yearly crop to messrs Branson and MOLs alternative fuel refinery and the passing 737s smelling like the local chippy !
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In comparison to 10 years ago there is a vastly increased capacity in the UK and Europe, however the likes of Easy and FR are not competing directly with the legacy carriers, they have opened up whole new markets for air travel and have spawned a whole new breed of traveller.
10 years ago a stag or hen party was usually held in yourlocal pub, nowadays stags and hens usualy head of to Dublin, Prague, Spain etc for the weekend. 10 years ago to try and get to Majorca for a week-end break meant flying with a legacy carrier via LHR and gettting charged a fortune for the priviledge. You could get a charter but generally had to fly when they wanted you rather than when you wanted.
The eastern block countries joining the EEC has also opened up a whole new market as well, I know the Poland-UK routes have very good loads, look out for Bulgaria to be added to the list of loco's as they wil be entering the EC soon, accomodation is cheap, so bet into property there now.
In short I don't think there is overcapacity at the moment, although I do find it difficult to see the continued expansion continuing the way it is, maybe it can be sustained especialy to eastern block countries joining the EC and the flood of immigrants that will ensue. Airlines offering cheap seats to repatriate these people on vacations and weekends will make a killing.
10 years ago a stag or hen party was usually held in yourlocal pub, nowadays stags and hens usualy head of to Dublin, Prague, Spain etc for the weekend. 10 years ago to try and get to Majorca for a week-end break meant flying with a legacy carrier via LHR and gettting charged a fortune for the priviledge. You could get a charter but generally had to fly when they wanted you rather than when you wanted.
The eastern block countries joining the EEC has also opened up a whole new market as well, I know the Poland-UK routes have very good loads, look out for Bulgaria to be added to the list of loco's as they wil be entering the EC soon, accomodation is cheap, so bet into property there now.
In short I don't think there is overcapacity at the moment, although I do find it difficult to see the continued expansion continuing the way it is, maybe it can be sustained especialy to eastern block countries joining the EC and the flood of immigrants that will ensue. Airlines offering cheap seats to repatriate these people on vacations and weekends will make a killing.
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I also clocked yesterday that FlyBe is strating a futher 30 plus routes from various locations within the UK. The market must soon be saturated and someone is going to get shafted. The FTSE and the NYSE reflects growing inflationary problems and the great cliff we may be about to fall over could be our own appetite for borrowing which cannot continue to be sustained?
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Its not just leisure travellers making use of the locos - It is now simple and cost effective for a company in say, Edinburgh to service a contract in the west country or a west country firm to run a contract in Italy or Germany or Hungry etc. We are really lucky here in the UK because it is very easy for us to reach the rest of the EEC cheaply and swiftly - so my arguement is even though prices will go up, the demand will still be strong from all sectors.
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Half
As is often the case there is some truth in both sides of the peak oil debate.
A lot of the easy to get oil has been extracted. Demand can be met by using a tiny amount of the hard to get oil on top easy to get sources. Now some are able to charge $70 a barrel for the stuff. The people who can get it out of the ground for $15 will also charge $70 as its a market, the price is set by what people will pay. Only a small drop in avaliblity can make the price rocket in the short term. Over the long term this leads to airlines and car drivers buying better kit or driving/flying a little less. The market will prevent oil running out in the next 20 years but it could be at the expence of a few airlines. If they all need to add another £20 per seat then ryanair is going to have to makeup some more fees, charges and taxes.
A lot of the easy to get oil has been extracted. Demand can be met by using a tiny amount of the hard to get oil on top easy to get sources. Now some are able to charge $70 a barrel for the stuff. The people who can get it out of the ground for $15 will also charge $70 as its a market, the price is set by what people will pay. Only a small drop in avaliblity can make the price rocket in the short term. Over the long term this leads to airlines and car drivers buying better kit or driving/flying a little less. The market will prevent oil running out in the next 20 years but it could be at the expence of a few airlines. If they all need to add another £20 per seat then ryanair is going to have to makeup some more fees, charges and taxes.
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Instability in the Middle East is one threat, but that affects only part of the fare. Equally likely is the Government realising that it can sting us with yet another Stealth Tax (justified by the environmental argument) or the real biggie, interest rate rises. My mortgage is OK at the moment but what if interest rates rise? I've still got eat, I don't have to go on holiday......
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I would suggest that over capacity already exists, certainly in the UK regional market. Load factors and yields are way down and there a at least three regional carriers that I know of that are on their last legs. Recently we have lost Air Wales and Emerald, not big players I would admit, but carriers like BACX are certainly looking very carefully at their operations. The oil price does not help, but it merely goes to emphasize the shake up that had already started.
