We Were Warned – Oil Crisis of 2008 and Beyond
I saw a CNN special presentation last night that had as its title, “We Were Warned – America Out of Gas. The same holds true for the airline industry. They were warned but except for Southwest Airlines and perhaps one or two others, like Jetblue, the highly paid executives were too busy enjoying their perks to listen up. Now, they are in fact paying through the nose for jet fuel with no end in sight.
And how about the American automotive industry? Did they heed the warnings? Just look at all of the suddenly unwanted SUV’s and trucks now accumulating at dealerships. It took gas prices near $4.00 a barrel to wake the public up and to cut into that SUV demand. The executives produced a lot of SUV’s because they were high profit models and the nearly mindless public could be convinced that they just had to have one to stand out from the crowd. Then as gas prices mover ever higher the SUV buyers found that they had purchased a vehicle that the crowd no longer wanted.
In the CNN special there was a very interesting segment featuring Sir Richard Branson, the founder of Virgin Airlines. Sir Richard was quite straightforward in his assessment of the energy situation. He stated that the shocks to the world financial system will be greater than the combined effects of World Wars One and Two combined. To try to save the day he thinks that, quite correctly in my opinion, it will take a huge emergency effort on the part of world governments, by industry and the public. He is not at all sure that we will have enough time to move to alternative energy sources before time runs out and we are at nearly empty.
Any period of disruption in oil supplies to the American economy will cause a huge decline in business activity. The airlines will be at the forefront of the devastation but almost all businesses and our very way of life will be affected. Just think of the huge travel industry that will be affected as airline travel is reduced. Hotels and spas, travel agents, taxi drivers, restaurants, gift shops, duty free shops, airport workers, all will be hurt along with countless other businesses as the financial fallout cascades into the economy.
The airlines are already taking a series of unpopular steps in a desperate effort to stay in business. Airlines are retiring older more fuel inefficient aircraft and reducing their fleet sizes. They are reducing the number of flights. Almost all of the airlines are downsizing and reducing the size of their workforce.
In addition, airlines have raised fares and will continue to do so. They are also nickeling and diming passengers to death by charging fuel surcharges and by charging for checked luggage and for everything else including soft drinks and peanuts. Forget about meals if you are flying economy class.
If crude oil prices stay above $135 a barrel the airline industry, or what is left of it, will be totally transformed within six months. The industry will have fewer flights to fewer destinations. Smaller market areas will probably not be served at all. With fewer flights airlines will try hard to pack as many passengers on each aircraft as possible in order to raise load factors.
The bottom line. Passengers will pay more airfare, a lot more, for less convenient flights on crowded flights with less service. Isn’t that just great? If you still have to fly you will pay a lot more for a lot less in service, comfort, and convenience.
Of course, if you have money to burn you can still book first class flights or business class flights and at a premium price probably still receive decent on-board service. It will be the mass numbers of economy class passengers who will suffer. The days of the great buses in the sky may well be over.
The death spiral for quite a few airlines has already started. Within six months to a year you can expect a number of additional bankruptcies, liquidations, and consolidations. The new world of air travel may have vast numbers of former passengers deciding to just stay home.
In the CNN special the probability of two quite easy to imagine events taking place in 2009 was factored into the dire consequences of a crude oil shortage. One was a category five hurricane hitting critical oil drilling and production rigs in the Gulf of Mexico as well as striking a crippling blow to the Houston, Texas oil refineries.
The second event, quickly occurring because terrorists groups know how to pile on a natural disaster and to strike at from their point of view a most opportune time, was a strike at Saudi Arabian oil producing facilities that reduced oil output by 3,000,000 barrels a day. The two events together immediately cause a full scale panic in America and around the world as businesses and the public become immobilized due to a lack of oil supplies. On world markets oil exceeds $200 a barrel and just keeps on climbing. Gas prices in the US reach $9.00 a gallon. Even at that price gas becomes hard to source. Gas stations just plain run out of the stuff.
We are that close to a full scale oil and energy disaster. Those who counted on a slow down in the American economy to curb oil demand didn’t count on demand picking up so strongly in countries like China, India, and Russia as economic development and automobile ownership grows at a dizzying pace. America is still the largest consumer of oil in the world but growth in oil consumption in some countries is so strong that it is more than taking up the slack of any American cut in consumption.
America needs a “Manhattan” type of highest priority project to conserve more energy as well as to develop alternative sources of power. Even if the next president is able to make that happen probably it is already too late for the US to avoid a lot of pain as it tries to adjust to insufficient supplies of oil at extremely high prices.
For most Americans, including many of our highest government officials, the first step that has to be taken is to come out of denial. By repeating tired old standard statements like, “American technology leads the world, we will use technology to solve the problem” and “hard working Americans always find a way” without following through and implementing urgent energy conservation and alternative energy development programs American may just lead the world into a period of terrible darkness.
The threat of energy wars, city against city, state against state, nation against nation, and even neighbor against neighbor, is a scary prospect in a world of scarce and diminishing resources. Should energy deficiencies strike America in a major way the chaos that would be a consequence would swiftly follow and be terrible to behold.
