 | | David Redekop
Principal Research Associate
Canadian Tourism Research Institute |
Only 60 years have passed since the British Overseas Airways Corporation (now British Airways) flew 36 “well heeled” passengers from London to Johannesburg on the world’s first jet-powered air passenger service. At that time, flying was a luxury that only the privileged could afford. The choices of destinations were limited as were the number of flights and carriers. Trains and steamships were still the main mode of transportation.
Much has changed in the aviation industry since that inaugural flight by BA. Instead of carrying 36 passengers, airlines can now cram in more than 360 passengers on a single flight. Flights to almost any destination in the world are available. “Low cost” and “budget” carriers with catchy names now populate the skies. Jeans and sandals have replaced suits and ties as the favourite attire onboard planes. Airlines now segregate the few that are willing to pay extra for bigger seats from the masses who seek the lowest available fare.
While the changes in the aviation industry have been monumental, even greater change lies ahead. Two converging forces, the cost of flying and an aging population, will bring about a new era in commercial aviation. It will be an era where there will be fewer choices of carriers and direct flights. Flying for leisure purposes will again become an indulgence reserved for the wealthy. It will be a sort of “back to the future” for the aviation industry.
Airlines are losing big money. According to IATA, the world’s airlines have lost nearly US $28 billion during the last two years. The higher price of jet fuel is one of the main reasons for the large losses. The world’s carriers are expected to see US $9 billion added to their fuel bill this year even though they are making fewer flights. In 1998 the cost of fuel was 11.4 per cent of Air Canada’s expenses. In 2008, nearly 31 per cent of Air Canada’s expenses were for fuel. The cost of fuel has become so significant that one carrier is now requesting passengers to empty their bladders prior to boarding the flight. Apparently the carrier has figured out that it stands to save millions of dollars on fuel by carrying “lighter” passengers.
Gone are the days of $10 per barrel of oil. During the last recession (1990-91) a barrel of oil (WI) averaged about US $24 a barrel. During the current recession, depicted by many analysts as the worst since the 1930s, oil has averaged around US $60 a barrel. The price of a barrel of oil is therefore higher today, during one of deepest recessions in over 70 years than it was five years ago when the economy was in good health. Despite the worlds largest consumer of oil is now only emerging from a recession, the price of oil is once again on the rise.
Airlines are in a desperate rush to adapt to the new world of high oil prices. Emptying your bladder before you board and charging for pillows, sandwiches and an extra bag is only the start of what lies ahead for fliers. The cheap oil has already been found leaving only expensive oil. And that will lead to higher prices; not just for airfares but for almost any product that is manufactured and shipped. Higher airfares will lead to less demand to fly and, consequently, fewer airlines. Fewer available seats on airplanes, will lead to higher fares. Eventually, flying will become only for the privileged.
The second converging force is the aging population of much of the Western World. The older someone is, the more likely they are to fly. But this is only true up to a certain age. The fastest growing segment of the population are Canadians 65 years of age and older. But this age group makes only about half as many trips to non-US destinations (in other words, airplane trips) as Canadians between 55 and 64 years of age. By 2031, there will be nearly twice as many Canadians over the age of 65 as there are today. Airlines cannot depend, therefore, on gaining growth from the segment of the population that is growing the fastest and has the most leisure time.
Of course, the flip side to this dismal outlook for airlines is the potential boost that our cities and rural areas stand to get as a growing number of North Americans choose to travel closer to home. Perhaps this will coin a new phrase for the travel industry. Instead of the “100 mile diet” how about the “500 mile vacation”?