Wednesday, April 27, 2005

Do Giant Planes Matter?
Today marks another aviation milestone, with the first test flight of the enormous Airbus A380 in France. It's been interesting watching the strategic duel between Airbus and Boeing, with the former opting for a super-Jumbo and the latter for the smaller, sleeker, super-efficient 787 Dreamliner. (Boeing wins on looks and name, if nothing else.) I haven't commented on this matchup previously, since there didn't seem to be any energy implications worth noting. Upon reflection, though, the A380 could turn out to be a significant component of new oil demand in the decades ahead.

When you look back on the air travel revolution of the last several decades, you see the impact of large, long-distance planes--principally the 747--making trans-Atlantic and even trans-Pacific flights accessible for the middle classes of America, Europe and Japan, along with the upper-middle classes of many other regions. Deregulation and competition added millions more passengers to this mix. All of this affected jet fuel consumption.

Between 1973 and 2001, global jet fuel sales grew from about 2.4 million barrels per day to 4.5 MBD, or just under six percent of all petroleum products sold. That doesn't sound like much compared to 20 MBD of gasoline (nearly half of it in the US alone), but remember that crude oil prices are "set at the margin"; in other words, it's the last barrel of demand (or supply) that matters most. The current high prices are largely the result of roughly two million barrels per day of unexpected demand, or lost supply cushion, however you prefer to see it.

So where is all this going? Could a new, dramatically bigger airliner open up air travel to a whole new generation of customers who've never flown before, or at least not with any regularity? Could it help unlock the latent demand for international tourism in China and India, without overwhelming existing airports? Airbus certainly thinks so, if you read their marketing materials for this plane. If the A380 were really successful, it seems reasonable that it might increase global jet fuel demand by a further 20% over the next decade. That would add an extra million barrels a day of crude oil demand and require additional refinery upgrades to translate it into jet fuel, without robbing gasoline or diesel production.

The result of this little scenario is a lot of new tourists, putting more pressure on oil supplies and prices. Am I reading too much into one new airplane model? Boeing would say yes, and if their 787 sales so far this year are any evidence, they may have the last laugh.

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