Summary
What we are seeing in the hypothesis stated is the results of rising energy costs. This is important because it may herald the start of some very fundamental changes across the entire airline industry and beyond. I am more concerned about understanding the dynamics of the rising energy costs; understanding whether they are transitory. Will they continue to rise, fall or remain static. The time frame I am concerned about is now, for short term actions, medium term and longer term. Energy costs are rising through 2 variables, carbon pricing is working its way into energy costs but more funamentally is carbon supplies; peak oil. Peak oil as an issue is much misunderstood. It is simply the point at where oil suply fails to match desired demand. That this will happen is without doubt, simply through geology, timing only is in debate by the informed. The wise investor and strategist must weigh up, understand the risk and hedge against it.
Analysis
The news of Austrian facing difficulties will not have a great impact unless people understand the reason for the change in fundamentals.
Peoples understanidng of the fundamentals is influenced by what they wish to and choose to believe and the evidence they cling to to support their chosen position.
Those that understand the peak oil hypothesis will choose to mitigate. Those that do not or choose not to will consider the very short term disruption.
Our contention is the current turmoil is a prelude to much greater pain to come. The airline industry we think is in for a very rough time when these variables are cosidered alongside consumer debt, mortgage over extensions and rising staples inflation resulting also from rising energy costs. It is a time for sober heads, mature intellegence and wisdom that may fly directly in the face of percieved concensus wisdom.
Energy prices may see a short term respite but respite it can only be if the oil and gas fundamnetals are as many of us believe are facing crisis.
Yet within this there are immense opportunities for airlines to address their energy costs. Alternatives are available and ironically they are carbon free if we understand the carriers for this energy and how to produce them. The companies that lead this will come out well. However here will we believe be a degree of carnage to come. Austrian is but a shot across sthe bows.
Energy Costs will continue to rise, fuel costs will have to be recovered from the airline passengers pushing up costs, airport taxes will not be reduced to offer solace, it flies in the face of enviromental arguments, and in the UK tax take, so travel miles are almost certainly going to decline.
Cheap air travel is predicated on cheap fuel.
I do think that over the next 10 years we will see much bigger changes especially if energy fundamantals are what we and many believe them to be.
