Yesterday in the Oz: Airport Overload as passenger numbers set to double.

I was quite surprised at this, particularly in the context of the week’s other airport related news –
there have been instances of airlines cutting back services, and talk of discount airlines going bust, if fuel prices stay high. For anyone familiar with peak oil then the expectation is that fuel prices will be getting quite a bit higher yet and we won’t be seeing big increases in air passengers. On top of this, if serious steps are made to deal with global warming then we can expect it to raise the price of flights as well to reflect their true to cost in terms of environmental impact.

I found the report referred to in the article here, and see that they do take these factors into account in Chapter 5 – Sensitivity Analysis. Here they consider two scenarios as alternatives to their main forecast, one with cheaper flights and one with more expensive flights, and find that the effect on the overall passenger numbers is not huge. This is, admittedly, not my area of expertise but I do have some problems with it. The “peak oil” scenario has a 50% increase in fuel price. This seems very conservative for a peak oil scenario, particularly in the light of recent trends in the oil price. It appears that this scenario involves only changing the cost of airfares in the model. Other effects, as we have seen this week, are that airlines may cut back the number of flights as some become uneconomical. Also, especially in Australia, there are not that many players involved. If some go bust, then the lack of competition has further effects on prices beyond simply the price of oil. Perhaps even more importantly, under a peak oil scenario it is not just the cost of flights that is effected. The cost of pretty much everything goes up. When, as is already starting to happen now, people have to use up more of their income on things like travelling to work, and food, then it can be expected that they have less to spend on luxuries like flights.

So basically, I have no problem with the model predicting a response to a 50% increase in airfare but I think that the future is rather more uncertain than that.
On a related note, check out ABARE’s encounter with Senator Christine Milne in Senate Estimates recently. Make sure you read the linked transcript, it is quite an eye-opener. Their “peak oil scenario” is that it might happen in 30 years and will have no effect on oil prices in the near future.