What to do About this Oil Mess...

High oil prices are a major problem for carriers. That's obvious. But what's the solution? Unfortunately, airlines are doing all they can to reduce the impact of high fuel costs. Hedging is undesirable, because it ties up large amounts of cash, and carriers don't want to bet that oil prices in the future will remain nearly this high. Many legacy carriers are parking older aircraft in an attempt to reduce capacity and fuel costs. And with the ones they're still operating, carriers are stripping anything unnecessary in order to reduce excess weight. The only thing left is to start making heavier passengers pay more. Other than these, there are simply few options for carriers in the short term, short of watching others fail. Moreover, there is little Congress can do to ease the pressures on carriers, without a large subsidy package or a release of emergency oil stockpiles (which even then, wouldn't tremendously help carriers). The industry is in a bind once again, and what many fail to recognize is that this isn't going to be a 6-12 month blip. These high oil prices are going to be with us indefinitely. After leaving bankruptcy, several carriers created business plans based around $50-$60 a barrel oil. $80 and above will be the new norm. As much as market analysts and airline executives would like to believe otherwise, worldwide demand for petroleum is simply too great, and production increases are not keeping up.

The two things that will cushion the airline industry in the future from high energy costs are a redesign of aircraft and a revamped national energy policy. Over the long term carriers need to demand to aircraft manufacturers that they make more fuel efficient aircraft. For instance, many carriers are holding off purchasing new aircraft until Boeing releases the next generation of the 737 series. The next 737 variant cannot have a marginal 10% or 15% improvement in fuel efficiency, which is what Boeing is working towards. It needs to deliver much more sizable improvements given this operating environment. Aircraft designs may have to be modified, such that the tube with wings that we have come accustomed to may have to be changed. The experience of flying will likely be different for passengers. But, these new designs could deliver the fuel efficiency improvements that airlines need. What airlines should really be pushing for now is a faster development of airship technology, which would be slower than traditional jet-powered aircraft, but which would burn few if any fossil fuels. This technology is currently in the distant horizons, but airlines need to make sure that it gets to market as soon as possible. It will change our air transport infrastructure by forcing airports and air traffic control systems to change, but it will help airlines not only reduce fuel costs, but also the potential villainization that they might receive due to their increasing contribution to climate change. And if the cabins are designed with passengers in mind, airships might even make the flying experience more pleasant.

Moreover, a more comprehensive national energy policy will help correct this mess that we've gotten ourselves into. The United States needs to dramatically reduce its fuel usage. The biggest consumer of petroleum in the US are personal cars, and the government needs to invest in a program to significantly increase fuel efficiency standards as well as reducing the need for automobiles by investing in rail transport. While this reduction may not significantly reduce world oil prices, since China, the Middle East, and other fast-growing regions will likely continue to increase their oil usage, it will increase US energy security and preserve the long-term viability of carriers. The viability of the US's system of oil imports is in doubt, given the interests of other nations around the globe and the decreasing ability of nations around the world to expand oil production. (For a good read about Saudi Arabia's failures in this area, see Matthew Simmons's Twilight in the Desert. For a PowerPoint about the book, click here). Expensive oil is problematic for airlines. No oil is fatal. A new national energy policy is not about the environment so much as it is about cost. In the long-term, it will be much cheaper for our nation to make a serious transition to renewables now than wait 20 or 30 years. And it will ensure the long-term viability of our industry if we find the most promising renewable technologies in each sector and adapt them. In the airline business, hydrogen powered-planes aren't an immediate option, but by making sure that the sectors of society that do have viable alternatives switch to them, airlines and their passengers will have a much easier time making the transition to different aircraft and fuel technologies when they do arrive.

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