One of the nice things about living and working in Japan is that it's a convenient base for traveling to other parts of Asia. However, with oil hitting $135 a barrel last week, the days of cheap and easy travel look to be at an end.
The price of oil will probably stay in triple digit territory for the long term, and the canaries in the coal mine are the airlines. They exist because of cheap fuel. Although the demand for travel has never been greater, they are having a tough time making ends meet. The price of fuel is killing them:
According to the US Air Transport Association (ATA) six airlines have been forced to close down since the beginning of April, while another has filed for Chapter 11 bankruptcy protection.
'There has certainly been an acceleration of shutdowns in the past month or so,' a spokesman for ATA said, adding that 10 carriers had been forced to close since 25 December. 'This is all to do with the cost of jet fuel. Carriers simply cannot afford it.'
And as analysts predict that the price of oil will continue to rise, there are fears that the worst is yet to come. 'There has to be a fundamental change in the economics of operating commercial aircraft,'said an ATA spokesman.
ATA claims that every dollar added to the cost of a barrel of oil adds $456m a year in jet-fuel costs for US airlines. The ongoing increases in the oil price over the past year have sent the price of jet fuel soaring by more than 65 per cent in just 12 months.
American Airlines will scrap 75 planes, fire a bunch of employees, and reduce service by more than 10%. They are now charging $15 per piece of luggage. Delta and Northwest announced plans to merge. Australian carrier Qantas has hiked its fares. Airbus apparently has negative valuation.
The Japanese airlines are no different. The cost of fuel is also dragging down JAL and ANA even though they have recently reported that they are back in the black after a round of cost-cutting:
Japan Airlines Corp. said Friday that its group operating profit more than quadrupled to Y90.01 billion for the business year that ended March 31, helped by its cost-cutting efforts amid surging fuel costs.
For the business year to next March, JAL expects group operating
profit will slide by 44.5 percent to Y50 billion. It also sees a 2.1 percent fall in sales to Y2.18 trillion and a 23.2 percent drop in net profit to Y13 billion.
[JAL Executive Officer Yoshimasa] Kanayama said fuel costs would rise by Y137 billion for the 2008 business year over the previous year if Singapore kerosene, a type of jet fuel, hits an annual average of $140 a barrel.
"If it rises above $140, we would have to make more (cost-cutting) efforts, or raise the (international-flight) surcharge on fuel," he said.
The price of airfare no longer includes the cost of fuel--that gets tacked on as a surcharge, in many instances after you've purchased your ticket, because the airlines themselves don't know what their fuel costs are from day to day. Japan Probe has a short blurb on higher fuel surcharges that will add close to $500 to the price of a round trip.
What are the odds, then, of being stranded in Japan because your preferred carrier has gone bankrupt or the price of a ticket has become prohibitively expensive? One gets the sense that in the not-too-distant future the world is going to become a lot larger.