Cheap flights, thin air
Michael O’Leary and Ryanair have done more to widen European horizons than Jacques Delors and the EU. But dirt-cheap air travel is not sustainable
The era of dirt-cheap air travel is almost certainly over. But the surge in oil prices does not necessarily mean the end of cheap-ish flying. Michael O’Leary, the boss of Ryanair, has made a typically provocative gamble by promising a 5 per cent cut in fares, after an 85 per cent fall in profits in the past three months. His logic is that higher fuel costs will finish the job that budget airlines began, of pushing inefficient competitors to the wall. That may be the best hope passengers have of keeping prices down, if not at rock-bottom.
Oil price turbulence is affecting every airline. US carriers have already laid off thousands of staff. EasyJet said last week that it would scale down its plans for growth. British Airways is said to be looking at cutting some short-haul flights. Twenty-four carriers have already gone bust this year. It seems likely that the industry will become increasingly polarised between long-haul, intercontinental legacy airlines and short-haul discount merchants. Small budget airlines will be squeezed, as will anachronistic national carriers such as Olympic and Alitalia, propped up by their governments to fly the flag.
Mr O’Leary has played an important part in making such nationalism look outmoded. The advent of budget carriers, which ferried 45 million Britons around Europe last year, has done more to build friendship and understanding between nations than any grandiose EU project. No-frills carriers have opened up Europe, by enabling more people to fly more often, and by putting entire regions on the tourist map for the first time. It is an open question how much cultural value is derived by stag parties getting plastered in Prague, rather than Poole. But one study, for the International Student Travel Confederation, found that overall, travel made people 10 per cent more likely to believe that “most people can be trusted”.
Fares are going up. The only question is by how much. Mr O’Leary’s confidence that he can lower fares, sit out the losses and grab market share come from Ryanair’s healthy cash reserves and good margins. Most airlines have slim margins and need to raise prices – analysts expect by an average 10 per cent this year. This will reduce demand (by 6.5 per cent, analysts say, for every 10 per cent rise in fares). Even if Ryanair emerges as king of a consolidated no-frills industry eventually, it will then have more power to raise its prices.
From 30,000 feet, what gives airline bosses vertigo is not just the economics but also the environment. Outbound flights currently make up 5.5 per cent of the UK’s carbon emissions, according to the Department for Transport. That is small beer compared to, say, electricity generation. But as other industries slash emissions, aviation is set to provide an ever larger share. Until the recent downturn, the Government expected unchecked aviation growth to provide a quarter of the UK’s carbon emissions by 2050.
Airlines are experimenting with fuel optimisation software and air traffic control reforms. Ryanair’s charges for extra bags are a kind of environmental tax. In fact, by filling almost every seat, and using more modern aircraft, budget airlines are arguably less polluting per passenger mile than legacy carriers. But all face the same problem: there is no renewable alternative to jet fuel. It is absurd that the £10 fare has made taking a weekend break in a foreign city an impulse purchase, cheaper than taking the train. It is disgraceful that some airlines are flying empty planes to keep “grandfathered” slots at Heathrow.
Sadly, there is no way around the fact that higher fares are needed to make air travel better reflect its environmental cost. Otherwise we will simply face a different kind of turbulence.
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