Are Rising Jet Fuel Prices Leading to the End of Aviation?

In June 2008 The New Republic published an article by Bradford Plumer with the startling title “The End of Aviation.” While the article mentioned me and my ideas about the aerotropolis model, it turned the majority of its attention to the short-sighted theory that the aviation industry was doomed for a variety of reasons. The reason in vogue at that time was the rising cost of jet fuel. When Plumer’s article was penned, oil prices were approaching $130 per barrel, fueling a panic among many that the rising cost of fuel would stymie the economy as a whole but especially the aviation sector. The data I’ve seen, however, suggests the opposite: the aviation sector is dynamic and constantly adapts to fluctuations in costs of oil to create an ever growing industry.  
While oil prices, of course, dropped from their record highs in 2008, fears have again begun to arise as a barrel of crude approaches the $90 mark. A recent Bloomberg Businessweek article even hinted prices could reach $100 per barrel by the second half of next year. According to many of the opinions featured in “The End of Aviation,” we should once again begin preparing for the aeronautical apocalypse. A simplification of those arguments goes thus: oil prices increase, airlines must increase their prices for both passengers and cargo, numbers of passengers flying decrease along with the amount of cargo being flown.
I was curious about this scenario and the validity of its assumptions and thus decided to plot annual global air passenger and air cargo data against annual average jet fuel prices from 1987 through 2008. Contrary to some of the arguments put forward in “The End of Aviation,” I found there to be no negative correlation between jet fuel prices and passenger/cargo volume--as opposed to what has been argued! 
Quite the contrary, it was strongly positive (r=+.79 for passengers) (r=+.70 for cargo). As can be seen in the charts below, higher jet fuel prices and greater volumes of passengers and cargo have moved along together.
While this is a simple computation and there is no doubt that there are additional factors such as the state of the economy that simultaneously affect jet fuel prices and passenger/cargo figures, the point is that there is no evidence to date that over longer periods of time jet fuel price increases result in reductions in air passengers or air cargo volumes. Airlines adapt, businesses adapt, and people adapt, so aviation continues to march upward long-term despite its periodic short-term dips.
Take a look at our short data table we put together below. We’ll update the data to 2009 when final figures are available to us. I look forward to hearing what you think.

Jet Fuel Prices to Passengers Comparison 1987-2008

                                            

Jet Fuel Prices to Cargo Comparison 1987-2008

Introductions

Welcome to my new blog! As you can see from my profile my name is John D. Kasarda, and I’m the Director of the Frank Hawkins Kenan Institute for Private Enterprise at the University of North Carolina at Chapel Hill. In my upcoming blog posts I will explore and share my thoughts about a variety of topics. Expect posts about aviation and infrastructure, economic development, demography, the Aerotropolis, and many other subjects.

Additionally, in March of 2011, Greg Lindsay’s and my new book, Aerotropolis: The Way We’ll Live Next is being published by Farrar, Strauss and Giroux. I’ll be posting more information about the book on this blog and writing about many of the concepts that appear in the book. Please take a look at the Aerotropolis website for reviews, blurbs, and more information my other publications and research.

I hope you enjoy reading this blog as much as I enjoy discussing the concepts. I encourage you to leave comments about my ideas or your own ideas, and I’ll attempt to answer your questions as best I can. I look forward to our future discussions!