How the Rising Cost of Fuel Has Affected Air Travel - Research Paper Example

?How the Rising Cost of Fuel Has Affected Air Travel Air travel is crucial to the everyday life of every person both directly and indirectly. There are also numerous challenges facing the air travel industry touching on travellers, airline operators and other allied sectors. High costs of fuel is one of them and has adverse effects on air travel as it means increased costs of operations for airline operators, and that travellers have to dig deeper into their pockets to pay for required fees. As a result, expansion of the industry is affected, as well as the innovative power of industry players. This is in the form of efficiency, cutting costs and passing on the costs to travellers. Introduction The rising cost of fuel prices has significant effects on the air travel industry in multiple ways affecting airlines, travellers and other allied sectors. In most ways, the industry has experienced numerous negative impacts as compared to positive impacts. This is to the extent of having some airlines pulling out of certain markets altogether or even quitting the industry altogether. This paper seeks to discuss the impacts of high fuel costs on air travel and its effects to the industry. Recent studies in the airline industry have seen the cost of fuel rise as a result of trends in the world oil prices. As a result, airlines have experienced increased operating costs due to issues of efficiency in fuel consumption and environmental taxes, as well as caps. This way, airlines have sustained increased costs of operation that have affected air travel significantly in regard to the aircraft acquired and expansion programmes (Cranfield University, n.d). In regard to the acquisition of new aircraft to be used in air travel, the high fuel costs have resulted in improved fuel efficiency. This is in the form of having airplanes with fuel-efficient engines that bring down the amount consumed over a given distance (Cranfield University, n.d). With this fuel efficiency, despite the increased costs in fuel prices, there have been significant milestones achieved. This is in the form of increase in the average size and carrying capacity of the aircraft; as they can handle more loads in the form of luggage and passengers with sustained fuel consumption (Cranfield University, n.d.). Moreover, another field affected in air travel, in reference to the increase in fuel prices, is the expansion of long haul and decline of short haul services (Cranfield University, n.d.). This is following frequent upgrade to aircrafts that have better fuel efficiency as compared to older fleets. Due to the high costs of fuel, the industry is able to adapt accordingly to bring down the costs of operation; and keep up with the ever-rising fuel prices and allowing air travel to cover greater distances with more capacity, and with lesser fuel consumption. Thus, due to high fuel prices, airlines have opted to focus on revenue management strategies to cut all costs of operation. In this case, the high fuel costs have been placed on the traveller to shoulder the burden, in the fare; they pay for the usage of air transport. However, some, instead of passing the cost of fuel directly on to the passengers, they have chosen to have value added services that are optional for the traveller (US Bureau of Labour Statistics, 2012). The services could be in the form of meals offered on board and are gladly accepted and paid for accordingly. In addition, services and costs that cater for fuel are in the form of the service that the passenger would like, such as flying business or economy class and all fees charged for reservation and cancellation of tickets (US Bureau of Labour Statistics, 2012). Thus, the cost of travel has gone high as a result of the levies that are passed on to the traveller. Still on high fares, travellers have, in recent times following high fuel prices, had to pay more for the cost of their luggage. This contributes to the overall cost of travelling by air through charges for hand luggage, overweight luggage and oversize baggage. In addition, air travel has experienced increased regulation from the various regulatory agencies that monitor airlines and their fees. This is following errant changes in pricing where travellers prepare their finances as per advertisements and changes occur at checking in. This has led to calls for transparency concerning the fees charged by airlines for various services (US Bureau of Labour Statistics, 2012). Elasticity is another issue that affects air travel in light of increased fuel prices. This is based on the fact that not all travellers using aircrafts can stick to the same air fees charged by airlines. Instead, leisure travellers tend to be more flexible concerning prices while business travellers are not elastic at all due to the nature of their travel (Litman, 2012). As a result, new schemes of travelling have resulted to cater for all travellers due to air costs with fuel prices factored in. Travelling by air for touristic reasons has suffered from the adverse effects of high fuel prices. The impact in tourism is felt in regard to the reduced numbers of tourists travelling by air, and instead travellers seek to get value for their money. This is because; travelling by air in a bid to sight see is viewed as a luxury. In times when prices of essentials are high, luxuries are the first to suffer the consequences (Ringbeck et al, 2009). In this case, it is air travel as most tourists save up for their vacations to spend as they please. Therefore, the volume of tourists using air travel suffers draw backs by having reduced numbers of travellers willing to pay for the high prices. However, it is not in all cases that air travel has suffered the consequences of high fuel prices. This is because; the little volume of travellers for luxury reasons has led to competition among various air travel agencies around the world (Ringbeck et al, 2009). Moreover, in tourism, holidaymakers opt to slash their budgets to long haul destinations by air travel. This affects the air travel industry in that the revenues generated from short haul destinations chosen by holiday makers do not generate increased revenues. Therefore, high fuel prices have a direct impact on the choice of mode of travel chosen by tourists (Ringbeck et al, 2009). In the airline industry, the high cost of fuel affects the profits and income generated by the various players in the said industry. This is in multiple ways such as that an increase of a small percentage in air fares results in, substantial, drops in the volume of travellers using a given airline to their destination. This is evident as in the case where projections show that a 10% increase in fuel prices mean a marked difference in the volume if travellers to highly frequented routes by up to 17 % (Ringbeck et al 2009). This translates to decreased income for the airline; as more travellers move t save their finances in more crucial issues or use cheaper means of travel such as road or rail while compromising on the efficiency and time keeping involved in air travel. In addition, to cut costs of operation, airlines have opted to introduce new fees to cater for the increased cost of fuel. As mentioned earlier, some airlines have burdened the traveller with more financial costs in the form of check in baggage fees, as well as commission fees (Ringbeck et al, 2009). In some cases, high costs of fuel have forced the elimination of some routes altogether or even reducing the number of flights to and from a given destination or origin (US Bureau of Labour Statistics, 2012). This is particularly so for the long haul destinations, thus reducing the costs of operation in the routes that have fewer travellers and focusing more on those that have more travellers and that are likely to generate more revenue. In this way, the costs incurred by airlines in fuelling their aircrafts to destinations that do not do much for their enterprises are cut substantially. In this manner, travellers suffer from fewer destination and more connecting flights to their specific destinations. Moreover, due to high fuel prices, the industry suffers from a slumped growth rate due to costs of operations and lower profitability as compared to in times of low fuel prices (IATA, 2011). The costs have also led to closure of operations entirely by some air operators and even mergers with bigger firms in order to keep up with the rising costs of operation resulting from prohibitive fuel costs (U.S. Bureau of Labour Statistics 2012). In conclusion, air travel has suffered extensively because of increased fuel prices all around the globe resulting in new trends never experienced before. In this regard, air travel has become more expensive as fuel prices increase. References Cranfield University. (n.d.). Fuel and Air Transport: a Report for the European Commission. Retrieved on 17 July 2012 from http://ec.europa.eu/transport/air/doc/fuel_report_final.pdf US Bureau of Labor Statistics. (2012). Beyond the Numbers: Prices and Spending. Retrieved on 17 July 2012 from http://www.bls.gov/opub/btn/volume-1/how-new-fees-are-affecting-the-producer-price-index-for-air-travel.pdf Ringbeck, J et al. (2009). Endangered Growth: How the Price of oil Challenges International Travel & Tourism Growth. Retrieved on 17 July 2012 from https://members.weforum.org/pdf/ttcr09/Chapter%201.2.pdf Litman, T. (2012). Understanding Transport Demands and Elasticities: How Prices and Other Factors Affect Travel Behaviour. Retrieved on 17 July 2012 from http://www.vtpi.org/elasticities.pdf IATA. (2011). Finamcial Forecast: High Fuel Prices Squeeze Airline Profits. Retrieved on 17 July 2012 from http://www.iata.org/whatwedo/Documents/economics/Industry-Outlook-March2011.pdf Read More