Call me an incurable optimist, but I tend to see human and economic coniditions as being on a continually upward trend. It can be somewhat difficult to hold this seemingly untenable position especially on days when the stock market tanks or oil shoots above 100 dollars per barrel, but all the same hard data show that in most every arena--the economy, demographics, the aviation sector--things are actually improving all the time. Meet a professor who puts my thoughts not only into words, but molds them into dazzling exhibitions: Dr. Hans Rosling of the Karolinska Institute in Sweden. Rosling’s stunning displays provide clear focus to one indisputable fact: demographically speaking, the world is getting much better. On a graph moving through time Rosling places 200 countries on a grid with one axis labeled median income and the other life expectancy and shows how these countries have developed over the course of the past 200 years...all in 4 minutes (see here). I know what you’re thinking, this kind of information overload seems about as intellectually satisfying as putting the history channel on fast forward and watching with glassy eyes, yet Rosling’s exuberance and narration bring to the forefront the important message behind this display: people the world over are living longer and getting richer and the developing world is making progress at a tremendous rate. Placed in a longer-term, macrospective environment an interesting phenomenon is illustrated here. By removing ourselves from our own day to day observations of history we are better able to see the ‘grand’ movements. Now, stop for a moment and put yourself in the place of a person living during the Spanish Influenza epidemic of 1918 or the stock market crash of 1929. From his or her perspective the world had taken a turn for the worse--perhaps a herald of a not-so-great future. Yet, in Rosling’s graph shows that these events are mere blips in the general upward progression.
Where am I going with this? In my previous post on jet fuel prices I pointed out that the trend in passenger and cargo numbers is one of substantial long-term increase, even in the face of rising cost of oil. Much as is the case with the events Rosling discusses, we lose sight of the grand scheme when looking at data for the aviation sector. One or two years in a down cycle and analysts begin predicting the end of aviation and factoring out any innovations or coping mechanisms the industry might present. The aviation industry, however, will surprise us from time to time. Take for instance $4.5 billion in profits that is expected to be posted for 2010 (source). Difficult years will happen in the future, yet aviation always innovates, and more people and products will take to the sky. Things always get better. Do not commit the fallacy of the last data point, but look to the long-term trends for strategic guidance.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Tuesday, January 25, 2011
Monday, January 10, 2011
Detroit One Step Closer to Moving from Autocity to Aerocity
To American ears the city of Detroit is synonymous with one thing: automobiles. Many, however, would like to see an addition to that list of synonyms--aerotropolis. With the signing into law of the Next Michigan Development Act (NMDA) by departing Governor Jennifer Granholm this hope is one step closer to reality. The NMDA provides for the creation of up to five agencies, each of which is constituted by a group of linked communities with an interest in providing amiable conditions for the growth of businesses centered around transport hubs. One such agency, the Aerotropolis Development Corporation, will now be imbued with the power to dispense tax incentives to new businesses within the 60,000-acre economic zone located along the I-94 corridor between Detroit Metro Airport (DTW) and Willow Run Airport (YIP). The NMDA aims to foster an area dominated by high-tech, professional, and shipping businesses similar to those seen around Dallas-Fort Worth Airport (DFW) or Memphis International Airport (MEM). The cooperation of the Michigan government and the communities surrounding DTW and YIP point to the success of this endeavor.
Most impressive about the efforts surrounding the Detroit aerotropolis project is the level of cohesion with which the communities, state, and developers are acting in an effort to grow the proper conditions for a major economic hub. It is certain that with a major passenger airport like DTW, a Delta/Northwest hub, and YIP, a major center of air cargo, an aerotropolis of some sort will develop--the major unknown is what shape that entity will take. Without significant, cross-jurisdictional planning an aerotropolis will not live up to its economic potential. Yet, the agreements in place among the communities surrounding these two airports show a willingness to plan in ways to better leverage overall aerotropolis productivity, aesthetics, and sustainability. I look forward to watching the growth of the Detroit Aerotropolis and think it a propitious opportunity to provide a solid economic foundation for a region hard-hit by the recent economic cycle. Congratulations to all those involved in the project.
For more about the Detroit Aerotropolis Corporation click here.
For more about the signing of the Next Michigan Development Act click here and here.
Most impressive about the efforts surrounding the Detroit aerotropolis project is the level of cohesion with which the communities, state, and developers are acting in an effort to grow the proper conditions for a major economic hub. It is certain that with a major passenger airport like DTW, a Delta/Northwest hub, and YIP, a major center of air cargo, an aerotropolis of some sort will develop--the major unknown is what shape that entity will take. Without significant, cross-jurisdictional planning an aerotropolis will not live up to its economic potential. Yet, the agreements in place among the communities surrounding these two airports show a willingness to plan in ways to better leverage overall aerotropolis productivity, aesthetics, and sustainability. I look forward to watching the growth of the Detroit Aerotropolis and think it a propitious opportunity to provide a solid economic foundation for a region hard-hit by the recent economic cycle. Congratulations to all those involved in the project.
For more about the Detroit Aerotropolis Corporation click here.
For more about the signing of the Next Michigan Development Act click here and here.
Wednesday, December 22, 2010
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.
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
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