Jetrader - September/October 2008 - 17

• Biofuels will become a reality if fuel prices stay high. We have seen estimates that biofuels will be a lower cost option than petroleum products when fuel prices exceed $100 per barrel and perhaps as low a just $80 per barrel. The European Parliament’s actions earlier this week highlight that Greenhouse Gas regulation is imminent, with full impact perhaps as soon as 2011. It will clearly impact the industry. Our colleagues at ICF have estimated that cap & trade regulation in the U.K. alone will provide revenue of nearly £25 billion in 2030—approximately £9 per passenger—which will be on top of the Green (APD) Tax of £10, which recently went into effect. How this money will be used is clearly an important issue and this has not yet been determined. It is certainly possible that these rules may create one of the largest income redistribution programs that have ever been devised. In addition, it is hardly clear that the EU can implement these regulations without any international consequences. Some suggest that the rules may violate the provisions of the Chicago convention. Nonetheless, it seems likely that the U.S. Senate will pass some form of greenhouse gas regulation – while President Bush will likely veto, all of the U.S. presidential candidates support some form of legislation. Hence, it seems probable that opposition, at least from the U.S. front, will wane. In my view, it is evident that the airline industry will soon have new regulations, and the industry will have to respond accordingly. It seems clear, however, that the effect of these regulations will just add a little fuel to the ﬁre of change that the rise in fuel prices has already created. The airline industry—whether due to new environmental regulations, high fuel prices, or both—will see the following in the near-to-intermediate term: • An accelerated replacement of fuel inefﬁcient aircraft—especially impacting the smaller regional jets, older MD-80’s and other smaller aircraft. • A rapid network restructuring that will see the outright elimination of unproﬁtable hubs. • A relatively smaller industry than what would have existed without the fuel price rise and costs of environment regulation. • A less competitive industry as much of the environmental regulation could have a dampening effect on new carrier entry and could reduce the amount of competition that we have in the industry. • Very strong incentive to accelerate the development and introduction of new technologies to further reduce fuel consumption and create a carbon neutral industry. More money will be spent to improve air trafﬁc management helping the industry to reduce ﬂight times and delays. There will be a rapid and concerted move to develop economically viable biofuels, with delivery perhaps being spurred by local community and airport efforts. In short, a different industry will emerge, but it will still be a vibrant industry and an essential one that will continue to help connect the world without damaging the environment. CONSULTING • Strategic Planning • Industry Forecast • Airline Planning 364624 • Inspections & Audits AVITAS • Redeliveries & Repossessions 1/2h 4C p 17 • TECHNICAL Maintenance Cost Studies VALUATIONS • Aircraft Engine Values • Asset Management • BlueBooks Online Values & & The Leading Advisor to the Aviation Industry www.AVITAS.com tel.: 703.476.2300 fax: 703.860.5855 Jetrader 17 364624_avitas.indd 1 1/16/08 11:37:31 PM

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Jetrader - September/October 2008

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