Will you ever get to See Asia?

Chris Nelder from Energy and Capital brings us to this realization

In the last 90 days, jet fuel prices have spiked 38%, rising along with crude.

It was no surprise to me, then, to see some of the smaller carriers starting to go belly up this year. As oil has hit record high after record high, fuel costs have actually exceeded labor costs for many airlines, accounting for as much as 40% of operating expenses.

Eight low-cost carriers have officially bitten the dust recently:

Aloha Airlines

ATA Airlines

Champion Air

EOS Airlines

MAXjet Airways

Oasis Hong Kong Airlines

Skybus Airlines

Skyway Airlines

Frontier Airlines is also in bankruptcy, and many of the major airlines, from Northwest to United have merged or have considered it.

The U.S. airline sector as a whole posted an $11 billion loss in the first quarter of this year. “When all the results are in, this will be one of the worst quarters for the industry in its history,” said John Heimlich, chief economist for the Air Transport Association.

Every major carrier except Southwest Airlines recorded a loss. Southwest posted a $34 million profit.

How did Southwest do it? By hedging 70% of their fuel costs. The next most hedged was Northwest, at 45%, and all the rest were under 24%. Their hedging strategy is simple: They buy fuel futures when the market is soft. Southwest is now benefiting from having the foresight to start hedging a full decade ago.

In time, air travel will once again be only for the rich. I expect it will end much as it began, with limited high quality service for a select clientele. Consider this: A seat on the first commercial air flight, a 23 minute hop from St. Petersburg to Tampa, Florida in 1914, cost more than $3600 in today’s money.

And they hit it!

Rail: The Longest Safe Bet You Can Make

If you’ve ever had the pleasure of riding a modern high-speed railroad in Europe, you know why I say that.

Taking the TGV, the electric-powered French long-distance railroad, across the country from Paris to Provence was without a doubt the most enjoyable travel I have ever experienced. I boarded the train shortly before departure time without any security checks, and kept all my bags with me the entire way. I luxuriated in a huge leather reclining seat while being quietly whisked at 200 mph across the picturesque countryside. Regular service walked up and down the aisles, asking if I’d like anything to eat or drink. Or I could get up and stretch my legs and walk down to the café car if I wanted something-like a decent sandwich on a nice baguette, not some nasty air “snack.” Door to door, it was a little cheaper than an air ticket, and took less time because trains go from city center to city center, not to some godforsaken outpost 20 miles outside of town… it’s bliss!

  • Rail is by far the cheapest and most fuel-efficient form of transport, requiring about a third less fuel than air for personal travel, and as little as 3% of the energy for freight.
  • Rail can also run on renewable generated electricity, making it a true transportation alternative for the future.
  • Anthony Perl, author of the new book Transport Revolutions, predicts that in 2025, no more than 25 airports will be functional. Electric powered transportation and rail will be the standard transport options.
  • No wonder Bill Gates has become the largest investor in Canadian National Railway (NYSE: CNI). Warren Buffett and George Soros have taken large positions in both Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC). And Carl Icahn has taken a $122 million stake in CSX Corporation (NYSE: CSX).

And as many trains travel up to 125 miles per gallon I may be turning Bullish on Rail!



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