Energy and U.S. airline traffic

Abstract

Introduction: THE U.S. AIRLINE INDUSTRY HAS BEEN EXPOSED TO A PERIOD OF MAJOR SURGERY DURING THE PAST THREE YEARS AND HAS SURVIVED. VIEWED FROM THE STANDPOINT OF THE CAB, IT WAS NATURAL THAT THE GREAT IMPROVEMENT IN PROFITABILITY WHICH OCCURRED IN THE FIRST TWO YEARS BE DIRECTLY ATTRIBUTED TO THE SURGERY WHILST THE DOWNTURN THIS YEAR WAS CAUSED BY THE CYCLICAL NATURE OF THE BUSINESS. OTHERS BELIEVE THAT THE UPTURN IN PROFIT WOULD HAVE BEEN EVEN MORE DRAMATIC HAD IT NOT BEEN FOR THE ACTIVITIES OF THE CAB AND THAT THE DOWNTURN WAS GENERATED BY FARCICAL TARIFF STRUCTURES. WHATEVER THE POSTMORTEM ON THE LATE 1970'S REVEALS, DEREGULATION IS NOW INEVITABLE ALTHOUGH ITS TOTALITY REMAINS IN DOUBT; CYNICS TEND TO BELIEVE THAT CONGRESS AND THE ADMINISTRATION WILL SHY AWAY FROM THE FINAL ACT OF COMPLETELY DEMOLISHING THE CAB. THE 1979 Iranian COUP GENERATED ONE MORE ENERGY CRISIS WITHIN THE UNITED STATES. IT, AND SUBSEQUENT FEDERAL ACTIONS, ARE UNLIKELY TO CREATE AN EXTENDED SHORTAGE OF PETROLEUM PRODUCTS IN THE UNITED STATES BUT HAVE PRODUCED A SIGNIFICANT INCREASE IN ENERGY COSTS WHICH WILL CONTINUE TO INCREASE, THE AIRLINE INDUSTRY IS ONLY A MINOR USER OF LIQUID HYDROCARBONS BUT IS NONETHELESS HIGHLY VISIBLE. ITS USE OF ABOUT 4 TO 5 PERCENT OF THE U.S. TOTAL CONSUMPTION OF OIL LEADS TO MORE CONTROVERSY THAN IS THE CASE IN ALMOST ANY OTHER CONSUMER SEGMENT; AS ONE POLITICAL COMMENTATOR PUT IT, "AIRLINES DON'T HAVE MANY VOTES." IN CONSEQUENCE, THE INDUSTRY'S LONG-TERM PLANS TEND TO SUFFER PERTURBATIONS DEPENDENT UPON BOTH THE FUEL SITUATION AND POLITICAL ACTIVITY RESULTING THEREFROM, THERE IS HEIGHTENED CONCERN IN THE UNITED STATES THAT THE DETERIORATION IN Iranian OIL SUPPLY, THE PRESENT GLUT, AND THE DOWNTURN IN THE ECONOMY MAY RESULT IN AN EXTENDED SHORTAGE AS MORE OPEC SUPPLIERS CURTAIL PRODUCTION IN THE INTERESTS OF INCREASING PRICES.AND CONSERVING THEIR RESOURCES. SOME OF THE RECENT U.S. GOVERNMENTAL DECISIONS ARE AIMED AT REPLACING IMPORTED OIL WITH ADDITIONAL DOMESTIC PRODUCTION; OTHERS ARE DIRECTED AT REDUCING DOMESTIC DEMAND. WHILST REDUCTION IN SUPPLY, EVEN OF A TEMPORARY NATURE, WOULD OBVIOUSLY SEVERELY AFFECT THE AIRLINE INDUSTRY, A REAL GASOLINE SHORTAGE WOULD HAVE A MORE PERVASIVE EFFECT ON THE WHOLE ECONOMY AND WOULD GENERATE SECOND-ORDER CHANGES IN MANY ASPECTS OF U.S. LIFE. THE OBJECT OF THIS LECTURE IS TO REVIEW THE LIKELY EFFECTS OF CHANGING U.S. OIL POLICIES ON THE U.S. AIRLINE INDUSTRY.