thenextwave

Airlines, collusion, and carbon

Posted in aviation, business, climate change, emerging issues, energy, environment, transport by thenextwavefutures on 3 August, 2007

Obviously, I’m as opposed to companies colluding so as to gouge the customers at least as much as the next person. Equally obviously, it’s a bad thing if airlines gang up to pretend they’re competing when they’re not, really. And, therefore, it’s A Good Thing when British Airways is fined £270m for running a cosy little deal with Virgin to keep their prices up (even if it’s also a bit of a mystery even on close readings of the story as to why Virgin escaped unscathed.) But buried in all of this is an idea about how to reduce the volume of air travel while not destroying the aviation business in the process. Competition economics is not, typically, good for the long-term health of the planet.

So let’s just turn all of this on its head for a moment. The acceleration in the volume of flights is bad for the environment (opens pdf), whatever one’s views of the share of blame the aviation sector should take. And one of the ways of getting people to fly less is to put the price up. (There’s some evidence that even the trivial levels of airport tax imposed by the UK government has contributed to the slowing of demand for low-cost flights: indeed, Ryanair is parking up some of its planes this winter).

At the same time, certainly in the long-haul space, airlines are already moving towards being luxury carriers only. There’s been a slew of recent announcements which point in this direction, for example from Virgin
and from American.

And the notion that it’s alright for companies to make absurd profits as a result of outcomes which are good for the planet is already well-established in the energy sector. The oil price goes through the roof, resulting in record profits for the oil majors, while also choking off demand for trivial uses of oil (such as driving to the supermarket) and encouraging investment in substitute products.

So let’s extend the parallel to the aviation sector. We should reduce the supply of air routes and landing/take-off slots, which also means that the airports companies stay in business despite lower traffic, and encourage the airlines to charge what the market will bear with a reduced supply. Prices will go up. People who can’t justify flying will do something else instead. Investment will be encouraged in alternative products such as good quality video-conferencing.

It’s even relatively good business. One of the first things I learnt about business pricing was that you should charge as high a price as the market will bear, because that way your margins are higher and your break-even point lower. So it might even encourage earlier investment in slightly more efficient planes. The airlines learn to make more money on lower volumes of flights; the environment is less damaged; and some people who might have gone to California for their holidays go to France or to Scandinavia, or even to Scotland. But we’d better not let on to the competition authorities…

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