AIRLINES DESPERATE FOR FUEL EFFICIENT FLYING

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Jan 30 - Feb 5, 20
12

Rising fuel bill is posing a serious challenge to profitability and survival of global aviation industry, as it accounted for 30 per cent of the operating costs, possibly at $176 billion in 2011, and is expected to touch $201 billion mark (32 per cent of operating costs) based on an average oil price of $100 per barrel by the end of 2012, warned the international air transport association (IATA).

Overall industry profitability is likely to nosedive at $4.9 billion (0.8 per cent net margin) from $6.9 billion (1.2 per cent of net margin), it said. IATA represents 230 airlines from all over the world that handle 93 per cent of scheduled international air traffic.

"Air transport needs fuel that is safe, used in an environmentally responsible manner, with a reliable supply and at reasonable cost," said Tony Tyler, IATA's director general and CEO in a press statement.

Pakistan's airline industry is not on the safe side of course. Rather air travelling both domestic and international is very costly for the citizens of the country. In fact, sometime domestic airfare is higher than that of international routes.

Rise in airfare is attributed to the increasing cost of operation 45 per cent of which for particularly Pakistan International Airlines (PIA), which holds 73 per cent share in passenger air traffic and handles almost all air cargo operation of the country, is said to have origin in fuel bill.

However, cost of air travelling (per kilometre cost of air travel from Pakistan) is high as compared to that of neighbouring countries. A report by the planning commission released last year noted with surprise a marked difference in airfares a traveller incurs while travelling from Islamabad to London and Delhi to London either on direct or connecting flight. Despite the same distance barring one hour additional on direct flight, the flights cover from two different points of departures, the travelling cost was calculated at Rs11.36 per kilometre in former travelling whereas Rs9.68 per kilometre in latter one. From Beijing, the cost came at Rs8.77 per kilometre, the report highlighted.

UNFAIR COMPETITION

The national flag carrier PIA that holds sway over the local aviation market comprising of more or less 28 domestic and international airlines, finds leeway to fuel airfares every now and then because of its monopoly.

Generally, fuel surcharge is the main stimulant of price of a ticket. As the name implies, it is an added charge over the original tariff and justified on fuel price hike. It is an irony, however, that the price does not usually come down when international oil price decreases or at least not accordingly. Gris monopoly of PIA, albeit it eats into more than Rs21 billion national revenue per annum, discourages private sector and fair competition in the market.

"Domestic market is in hand of PIA because of preferential route allocation, tax benefits, and other protectionist policies, making it difficult for new carriers to enter the aviation sector," said the planning commission in the report titled role of connectivity in growth strategy of Pakistan.

POOR INFRASTRUCTURE

There is need of improvement of air transport infrastructure in Pakistan as well since adequate transport infrastructure also plays a very important role in reducing the cost of operation. Unfortunately, air infrastructure in the country is not up to the mark.

Global competitiveness report 2010 put quality of air infrastructure of Pakistan at 81st position much below Thailand (28th), Malaysia (29th), Indonesia (69th), and India (71st).

Revolutionary changes in body and engine designs have greatly pulled down the fuel consumption of aircrafts in the global aviation market in last thirty years or so. It did not take less than 46 gallons of fuel to fly an aeroplane 1,000 miles in 80s but now this distance requires a passenger plane to guzzle 22 gallons, according to an analysis by AP. Fuel consumption is going down and so is the fuel. "The real revolution will come from the way planes are powered," it said.

BIOFUELS

Bio-fuels are being promoted as alternative to crude worldwide. However, its usage is not on commercial basis. Commercial aeroplanes need to be compatible with bio-fuel, which is successfully fuelling road transports in some countries including Brazil that is the world's second largest producer of ethanol distilled from agriculture produces. Both high horsepower vehicles such as trucks and small cars are run on biofuels.

Nonetheless, food sector experts fear growing incidences of food scarcity in poor economies and low income net food-importing countries if edible farm produces are excessively used in making of ethanol. This concern may also act as a barrier in the commercialization of biofuels. It is also notable that genetically modified organism technologies are being harnessed popularly to increase agriculture production. That may lead to the surplus stocks. Yet, biofuel commercialization is still a controversial issue.

REPLACEMENT

In the meanwhile, airlines decide on replacements of their retiring aircrafts with new ones that are more fuel-efficient and that can bring down their cost of operation. The new fleets also help them to reduce downtime and administrative costs. Airplanes manufacturers encourage this by offering planes on leases.

The Arab world's biggest airline Emirates eying for more than 250 aircrafts in its hangars by 2020 plans to buy new planes and replace its aging fleets with the new ones. Currently, the carrier owns 162 aircrafts.

How to make airlines fuel-efficient is a matter of concern for the global aviation industry given the fact that fuel cost used to make only 12 per cent of total cost a decade ago and it is running away?

Commercialization of biofuels, reduction in carbon footprints, and improving competitiveness are being promoted as possible solutions. Aviation is an important driver of economic growth. Global aviation gives birth to economic activities worth $3.5 trillion and 33 million jobs.