Maybe Costly Fuel Will Doom Low Cost Airlines

Let me confess by that I live with the very embodiment of environmental evil. My flatmate is one of those Europeans who have taken advantage of the advent of low-cost carriers to travel around the continent affordably to see more of what it has to offer. This week Bratislava, the next Riga, maybe Prague in two weeks' time. This is so because certain environmentalists view short-hop flights as a unique form of devilry. When bus and train networks will take you pretty much anywhere you want to go, they argue, why fly Ryanair or EasyJet? Short-haul flights of the sort weekend vacationers like my flatmate take are said to be far worse in climate change terms than terrestrial transportation. Too, airports and the constant buzz of airplanes supposedly add to the noise pollution of already aurally challenging urban life. Living under a flight path, I certainly appreciate Icelandic volcanoes late in the evening!

So you have movements alike Plane Stupid here in the UK who spend their time fighting the expansion of major London airports alike Heathrow and Stansted. Recall the "Battle of Heathrow" a few years back. Certainly the potty-mouthed Ryanair CEO Michael O'Leary regularly tossing f-bombs in the direction of the green crowd does nothing to endear himself to them.

But wait. Despite the endless enviro-pessimism of this crowd, they should find comfort in costly aviation fuel--not diminished European appetite to rediscover scenic towns across the continent via air travel--dooming Ryanair and Easyjet expansion. Earlier on, the news was that Easyjet was now losing money, and that it did not plan to increase capacity for the first time ever:

Rising oil prices and aviation taxes have nearly doubled easyJet losses as the budget airline announced a freeze in fleet growth over the next two winters.

EasyJet admitted that consumers will not swallow the higher fares needed to offset higher costs, so aeroplanes will be parked in slower months to stem losses. The Luton-based carrier revealed the capacity squeeze as first-half pre-tax losses, racked up during the traditionally quiet six months to 31 March, rose from £79m to £153m.

EasyJet highlighted the struggle for airlines to pass on soaring costs as revenue per seat slipped by 2.1%, which it attributed to a £1 increase in air passenger duty last autumn to £12 per flight. The near-doubling of losses was driven by a £43m impact from fuel, which now accounts for more than a quarter of the cost base, and a £21m hit from APD. EasyJet said it would hold its fleet size for its 2011 and 2012 winter programmes at 204 planes, while warning that it could change plans to grow its total fleet from 199 jets to 220 over the next two years.

Things are no better for Ryanair. Aside from not making much money, it now plans to reduce flight capacity for the first time in its history. It is also thinking of a move upmarket as low-cost fares look to have run their course for now:

Ryanair Holdings Plc (RYA) will cut capacity for the first time in its history next winter as fuel costs threaten to render dozens of routes unprofitable, ending decades of growth that made it Europe’s No. 1 discount airline.

Ryanair fell the most in 20 months in Dublin trading after Chief Executive Officer Michael O’Leary said he’d ground 80 of 300 jets and lay people off for the low season starting in October. Even with a 12 percent fare increase he forecasts net income no higher than last year’s 401 million euros ($563 million) -- or 18 percent less than estimated by analysts.

“It’s the first time ever that we’ll go negative on traffic,” O’Leary said in an interview. “We take delivery of 50 aircraft this winter so instead of running around trying to open up new bases and routes in November and December we’ll sit them on the ground. With higher oil prices it makes no sense.”

Ryanair has transformed the European airline industry since O’Leary took over in 1990 after studying the growth of Southwest Airlines Co. in the U.S., offering flights between cities never previously served by air and luring passengers from established carriers with bargain-basement fares and a no-frills service. More recently, the CEO signaled plans to attract higher-paying flyers after exhausting opportunities to lift sales by charging for everything from checked bags to credit-card bookings.

So there you go: costly fuel may do in the expansion of short-haul flights so reviled by the environmental crowd in a manner that all sorts of protests have failed to achieve all these years. At least the charity calendar survives, eh?