Qantas hit by invisible hand of peak oil

Qantas grounds all flights


 These problems don’t come unexpectedly

Qantas cuts staff, flights to counter fuel price hit


“The price of Singapore jet fuel has risen from around $US88 per barrel in September 2010 to more than $US131 per barrel today. Qantas fuel costs for the second half of financial year ’11 will be $2 billion,” Mr Joyce noted in a statement to the market. 

 We have been there before, 3 years ago. Former Qantas CEO Geoff Dixon told ABC TV in 2008 that he cannot make money when oil prices are high

 Qantas boss takes tough measures to combat fuel prices


 PHILLIP LASKER: There have been forecasts that jet fuel could go up to US$200 a barrel. What would that mean for Qantas?

GEOFF DIXON: Well, that’s a whole new ball game and I think a lot of other things’ would change and we’d have to be much more flexible. I think it’s very hard – I was asked earlier today as well – but I think it’s very hard for us to say what would happen if we were at $200, we’d have to make changes. But then so would the whole country I think and certainly there’d be a downturn in travel. There’s no doubt about that. We do have a lot of flexibilities when it comes to that. We can retire aircraft. We’ve got a lot of written down aircraft. So, look, we have contingency plans for those sorts of things, but it’s only speculation at the moment.

 Dixon warns oil shock will cost thousands of jobs


 GEOFF DIXON: Because the future is going to be very challenging – and I mean very challenging indeed – and here I will start with fuel because we believe this is where many airlines will end.

Oil of course is a finite natural resource and whether or not the world has reached peak oil is really a matter of debate. But there is no question that the cost of finding and extracting oil will continue to climb.

Today’s oil prices also derive from a long period of sustained global economic growth which you would know about, notably of course in China, India, and the Middle East. And this of course is the result of globalisation.

Now I’d say everyone in this room today is feeling the impact of high fuel prices. And while we welcome last week’s sudden drop in prices, we know there is no guarantee that this trend will continue.

There you are, peak oil was and still is endlessly debated while we are in year #7 of peak oil. If the government had told the public that peak oil is here, demands from Unions could possibly be more modest.

I recommended years ago to replace domestic flights by night trains.

In my submission to the Senate Inquiry on oil supplies in 2006

on page 20:

Another example is slide #59 of my presentation to the Municipal Association of Victoria in the Treasury Theatre in Melbourne in August 2009:

All these years later, the problem is still not understood:

7/9/2011   NSW budget 2011/12 does not increase oil use productivity

Where will future jet fuel come from as crude oil production is flat at best? Earlier articles on this topic: 

More details are here:

2/12/2010   Fly, but leave your car at home

17/2/2010   Report card 2009 (part 2): Aviation and airport plans – pies in the skies

28/11/2010   Infrastructure expenditure by mode not commensurate with oil challenge

25/11/2009    Sydney doesn’t need a 2nd airport

Let’s put some of the data into a graph to illustrate how jet fuel prices have impacted on the airline industry:

Net profits in 2011 are estimated at $ 6.9 bn or a wafer thin 1.2% of revenue. The jet kerosene prices in 2011 will on average be as high as in 2008. If oil prices rise again due to higher demand in China and increasing consumption in the Middle East while passenger revenue stagnates due to a recession in the US and Europe profits may go into negative territory again as in 2009.