COMMENT: Is there some comfort to be found in expensive fuel?

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This story is sourced from Airline Business
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While the pain high oil prices are inflicting on airlines comes as no surprise, what is concerning is the lack of an obvious remedy. Because, short of the invention of an "all-electric" airliner, kerosene will remain central to airlines' staple diets for the foreseeable future.

And it has been for much of the past 60 years since BOAC ushered in the modern air transport era on 2 May 1952, when a de Havilland Comet operated the World's first passenger jet service from London to Johannesburg.

While two elements of that experience have changed little for air passengers during those six decades - the speed and the altitude they flew at - the one big difference was the service required five refuelling stops - and two crew changes!

This was down to the ground-breaking Comet's relatively low efficiency and poor endurance. However, thanks to the massive strides in aerospace technology - largely driven by the almost exponential improvements in aero-engine capabilities - airliners have progressively delivered greater range and efficiency levels which have generally been more than a match for the spikes and upwardly trending oil prices.

In recent weeks the oil price's slide back towards the $100 mark has brought some cheer and relief for the embattled airlines. But the consensus is that cheap oil has been consigned to history. So while Airbus, Boeing and the powerplant people rush in new hardware offering double-digit fuel burn reductions, the likelihood is that when it arrives it will do little more than offset the oil price escalations - if indeed that.

As Lufthansa airline division boss Carsten Spohr pointed out after the recent delivery of his first new Boeing 747-8I, his fuel bill now accounts for more than 40% of overall costs in intercontinental operations. "Our industry has to face the fact that the oil price is the major driver of our cost calculation in the years to come," he said. "It's hurting the whole industry and bringing demand down."

As we stated in this column last year (Black Gold, October 2011), airline management teams are taking another hard look at their cost bases and pulling any levers they have available to control their bottom lines. And frustratingly fuel isn't one of them - at least until the improved airliners arrive.

Amid talk in some markets of the triple whammy of soaring fuel costs, declining passenger yields and low cargo demand, there is some serious re-evaluating under way in airline headquarters from Frankfurt to Beijing, Singapore to Hong Kong and Paris to Sydney. Whether this will be to park less-efficient airliners, cease non-essential travel, freeze recruitment or - in some cases - introduce slower cruise speeds, the reality is the industry is sailing towards uncharted waters. And the longer oil stays where it is - or God forbid even higher - that voyage will get tougher.

British Airways boss Keith Williams tells Airline Business that five years ago, when oil was at $45, he sat down and looked at two scenarios: What would happen if oil went to $80, and if it went to $120. "We came up with a very good plan of what would happen at $80. But we thought if it gets to $120 we don't know what we'll do," he says. "It's now at $120 and we're still making money. As part of this year's plan, we'll look at what would happen at $140."

But could there actually be some good to come out of high oil prices? Williams and Spohr both think so.

The BA boss believes the volatility has finally triggered the consolidation drive so long talked about. And Spohr points out that - paradoxically - expensive fuel helps airlines like Lufthansa, that operate in a high-cost zone, because it marginalises other factors such as labour or infrastructure.

But such thoughts are perhaps of little solace for the airlines currently facing a battle for survival.