I have spent the last 6 months researching the idea of 'peak oil' ie the view that we are at or very near the peak of oil production worldwide (which represents the point at which the cost of oil (and other hydrocarbons) starts to rise and rise and rise). Since the vast majority of people who get to Bonaire do so by air (and since the island is so dependent on tourists) has anyone in the island administration started to consider the ramifications of this? Ever rising fuel bills for aircraft would slowly strangle long distance tourism. It may sound alarmist but is it not worth giving it some thought? Anyone else out there pondering this question?

Nope,no thoughts on that subject..... I just ponder the Great Diving I'm in store for when I return to the Island.

Andrew,

sounds like you have too much time on your hands

Well dont say you didnt hear it here first.......type 'peak oil' into a google search and see where it takes you.....(when you have some time that is)

I just noticed that Dutch Carribean have gone bust. One of the factors in their demise may well have been the spiralling cost of jet fuel. Most US carriers are under intense financial pressure for the same reason. What happens if the fuel price doesnt come down any time soon? Fast forward a few years and the oil price is over $100 a barrel (perhaps a conservative view). Airlines will have to hike fares substantially and/or cut routes. Would you still go to Bonaire if your ticket cost 50% more? This issue is as big a potential threat to the islands success as the lawlessness one, and I sure hope someone at the top is thinking the ramifications through........

Sorry Andrew, completly wrong. The bankruptcy of DCA has nothing to do with the fuel prices.
First it was called ALM (owned by the Central government), and because they had so unbelivable high debts it was reorganized and became Air ALM (owned by the Central Government), and within a few years the debts where so high that DCA (owned by the Curacao Government) was created and DCA "managed" to created in 4 years debts between 40 and 140 Million Nafl ... nobody knows exactly .....and all that with about 25 Million tax money in 4 years subsidized ....managed by political friends, work places for more politacal friends, over-staffed and a very creative bookkeeping ... and now the unwilligness of some Curacao political parties to put even more tax money into a uneffecient airline are the reasons of their bankruptcy

Brigitte - thanks for the reply - but surely if debt was a problem then the recent hiking in aviation fuel would have made the situation much, much worse? I dont really think you can say it didnt play any part - you define it as inefficient - well staff and fuel costs are the 2 biggest costs to an airline, so if one shoots up it precipitates collapse. I read today in the Financial Times that Delta in the US is thinking of going into Chapter 11 bankruptcy protection (citing soaring fuel costs), and other US carriers are already there. I believe only 2 major US carriers have made any profit in the last 12 months. The oil threat is a very serious one in my opinion, with clear ramifications to overseas tourism, and the impacts of it are best thought through now rather than 5 years down the line. Still doesnt seem that most folk are not that interested, but I very much doubt I will be paying the same fare next year when I fly out to Bonaire.

Andrew, you really can not compare Delta or any other airline with DCA/ALM ... this airline should have been out of buisines 10 years ago .. on the latest 4 years ago when they declared the Air ALM bankrupt - all the debts stayed at that time with ALM and all assets whent to DCA ... this was a case of mismanagement, political appointments, corruption and (under investigation) fraude and nothing else.
That there is a big chance that the airline prices will not be the same next year , I agree with you. Irak does not produce as was thought in the beginning of the war... Nigeria has its own kind of problems and is producing less and Venezuela is producing less due to their internal problems and just raised the tax for the oil companies from 1% to 16.5% and what their Irak/Iran/Cuba-friendly president will do in the coming year ... who knows, could get much worse
But as I have no influence on any of it ... I prefere to keep my head in the sand and not worry daily before it happens
I can start thinking of driving a car with alternative energy, power our houses with wind & sun energy ... but airlines .....

I guess where I was trying to go in relation to Bonaire was - is there other methods of getting tourists in if airlines become too expensive etc? The obvious answer I guess is the cruise liners - the big boats are less sensitive to price hikes (they use less costly fuel etc). At present the big boats are something of a rareity down there I think - I just wondered whether someone in the Antillean govt is thinking this through. Without tourists Bonaire would be in deep trouble....which would be very unfortunate as I love the place

Andrew:

People who have come to Bonaire for the last 10+ year have uniformly derided ALM ("All Luggage Missing") and would do almost anything to avoid flying them. The awful service, the lack of reliable aircraft, safety concerns, in flight emergencies, etc. all caused many to *beg* for any other option. As Brigette noted -- the demise of DCA/ALM had nothing to do with fuel prices.

An analogy might be that a person who has not held a job in two years (and is not looking for one) and has $150,000 in credit card debt plus a big mortgage that exceeds the value of his house finally declares bankruptcy. In the end, it was not the fact that gas went from $1.50 to $2.00 a gallon that caused his problem.

In terms of Delta, et. al., fuel is a big concern -- but so are other issues especially labor costs and pension liability. In the end, Jet Blue and Southwest (both doing well) probably pay the same for fuel as Delta and United. And, at some point, it will need to cost more than $200 to fly from Seattle to Miami and back. Perhaps we will even get back to the pre-deregulated prices.

I am no fan of the "big ships" -- I have seen their impact on Cozumel (both good and bad, mostly bad). And would the big ship and get me from Seattle? Most (I think) that go to Aruba or Curacao now start in San Juan. I also have no idea what their fuel cost/passenger is.

Still, I think part of your thesis is correct -- oil supplies will continue to tighten (especially as global demand increases). Gas prices will go up. Home heating will go up. Air travel will go up. Still, up by how much?

Ultimately, I am a believer in the market -- and that prices will go up. As they go up, alternatives will start to come on line. And, in the short term, the disruptions could be significant -- imagine the impact (both macro and micro) of every new englander paying 50% more for home heating oil...

I would prefer the local government focus on crime, retaining regular air service in the current global environment (ideally w/ a direct cont. US to Bonaire flight)and infrastructure issues (water, sewage, etc.)

As a business person whose entire raw material inputs are oil derivatives (and buys about $5M of those products) and is constantly briefed by national associations, buying groups, economist and other smart peoples I can definately state that the new price per barrel of oil will settle out in the $40 to $50 range. $25 bbl prices are gone, gone, gone. OPEC and Russia are pumping at 100%. Demand is out stripping supply. China is booming. This is the new price of oil and it will stabilize here for the next few years. It's just the new level and prices are adjusting accordingly. Cost of boats are going up about 4% because of this and everybody is poised to move in January. If you want a boat or other oil derivative item...December is a good time to move on it. The market is correcting rapidly.
(laser printer humming away with the new price list)

This is a very intellectual discussion. Progressing further I have 2 points to make:

1. The fuel crisis is probably major with no alternatives for fossil fuels in the immediate future. Prices may just go up and up. We need to wake up and develop alternate fuels available to the public. The time is right. But I'm afraid that when gas hits $10/gallon there will be action.

2. Why is there not a single US airline flying from the mainland US to Bonaire? One would think the demand is there. Are they not allowed to fly because of redtape in Curacao?

To answer #2, it's because Bonaire's U.S. tourism is presently somewhere in the 20-25K visitor range per year using existing carriers. A new carrier might hope to get 30-40% of that traffic (rough guess). The only way an airline will presently fly from the U.S. to Bonaire for such a low tourist count is if someone guarantees seats with hard cash. Bonaire has no money to do that.

It has nothing to do with red tape in Curacao, and all to do with the fact that money losing U.S. airlines (pretty much all of them except Southwest) are regrouping instead of expanding. You could blame fuel costs, but seeing as airlines are charging flyers fuel surcharges, the blame is more likely a high union cost structure combined with other inefficiencies.

Jake

Thanks Jake for your reply. Points well taken.

I think the only positive point about troubles getting to Bonaire is that the reefs may not get a lot of pressure from overtourism.

brigitte.. I´m agree with you.the bankruptcy 0f DCA has nothing to do with the rise of fuel prices. DCA started with a lot of problems ,the biggest one was the accumulated debt from ALM.the second one (my opinion) came with the bad service on board,luggage missing,flight delays (almost every time) and the creation of new alternatives like Bonairexel and divi-divi...

Time will tell, yes the rich have and always will travel but American middle class might have to rethink this once affordable luxury. I'm a Baby Boomer who is middle class and the relatively cheap air fares have enticed me and others to vacation abroad but if those days are soon changing we will change our plans accordingly. I'm no fan of Mexico but I see a boom this winter/spring in travel there because of proximity and having escaped the hurricanes that ravaged the Caribbean recently. I like most on the site love the Island of Bonaire and in the words of Tony Bennet left our hearts here as nowhere else beckons us. The only thing constant is change. Best to all.

You hit the nail on the head. We all love Bonaire.

It is worth noting that rapidly escalating energy prices impact the costs of most consumer goods -- everything from plastics (made from the stuff) to food (making fertilizer, tilling, harvesting and transporting the goods to market all consume fuel) to home heating oil/gas/electric.

It would need to be a gigantic spike in energy costs to add a $250 fuel surcharge to the cost of a plane ticket to Bonaire given that about 10% to 15% of airline costs are directly fuel related. See http://www.customers-first.org/airfares1.html If the spike is that large, my least worry is the fuel surcharge on a plane ticket.

In my lifetime (I was born in the early 1960s), consumer expectations have increased significantly. A 2,000 sq ft house was considered to be relatively large when I was very young -- now it is probably on the smaller side in the current market. Many households had only one car -- not two or even three or four. And someone flying to a place like Hawaii or Mexico (in the late 1960s) was not super common.

So, in the broader sense, I have to be honest and admit I have no idea what even twenty years of change will bring -- to expectations, tastes and prices. But it has been fun so far...

David is correct on the component price increase in oil and how it affects overall pricing. Resin and gel coat are 20% of my cost of building material. Those products have gone up in price 30% since last December. That adds 6% to my cost of goods sold. If I raise prices 6% I re-coop my extra expense but my gross margin slides downward by 6/10 of 1 %. To maintain margin I either raise prices 6.6% or become more efficient.

Wally --

It always interests me why businesses make the strategic and tactical decisions they do. Before your post, I had not thought of the gross margin as a percent versus on a per unit basis.

I am curious why the focus on the gross margin as a percent versus a $$/unit. Is it made in recognition that with increased costs comes decreased demand (and thus the total gross profit drops) or is it more of a focus on return on investment (which recognizes that there are opportunity costs to investing cash in a business)?

Dave
A Self Confessed Finance Nerd

There's at least a couple of different technologies currently in research to replace the jet engine. I've forgotten the second one, but the one I do remember seeing used O2 and H2 for fuel (can you say "water electrolysis"?), called the Pulse Detonation Engine or PDE. If it lives up to it's promise, it'll provide significantly better fuel efficiency AND a heck of a lot higher operating speed, with a simpler engine design. It'll also operate in near space, so the 2 hour sub-orbital hop to Bonaire someone else mentioned might be just around the corner. NASA and the US military are both funding projects on PDEs. It's nice to know that not everyone has stuck their head in the sand on energy & transportation futures.

No guarantees this early in the research phase, but the stuff I'd seen looked pretty good. Howzabout mach 5 from Chicago to Bonaire for less than the current price for airfare? You'd have to climb steeply to a high altitude before hitting the mach barrier, or folks would complain like they did in the '60s.

Keep your fingers crossed, and pray to the patron saint of Technology for a cure to the Middle East Blues.

We really need to save the dwindling oil supplies for manufacturing. It's the main feedstock of many industries, and it's almost criminal to waste it so we can run around in circles (really fast).

"I do remember seeing used O2 and H2 for fuel (can you say "water electrolysis"?),..."

H2 for fuel (Can you say "Hindenberg"?) H2 - nice, clean fuel but combustible over wide range of fuel-O2 mixtures giving engineers much pause for thought (Can you say "product liability"?)

Heck, almost any airliner would have a Hindenberg-style accident if they didn't take special precautions with static grounding lines. I have a nice little AVI of a young woman filling up her car. During the process, she sets the autofill lever, then slides in and out of the car. The resulting static spark as she next grabs the filler nozzle sets the fumes on fire. Fortunately they got it out.

Given the choice between the problems of burning fossil fuel and H2/O2, I'll take the latter. The electric cars and city busses that use H2-fed fuel cells haven't had any big problems that I've heard of. I'm stuck behind city busses occasionally, and don't miss the diesel cloud they used to belch. Yeah, I know a suborbital hop would take a LOT more H2/O2 than a city bus, but with the efficiency boost of detonation versus deflagration, it's much less volume than the shuttles use for an equivalent distance (not counting the SRBs and the silly vertical take-off).

Have you ever seen video of a major turbine engine failure? Say "bye-bye" to anyone in range of the shrapnel as the compressor blades disintegrate. At least it's quick.

In the days following 9/11, the skies over Phoenix were almost perfectly blue, and the smog was near zero. Some of that was undoubtedly due to a number of people staying home watching CNN, but a LOT of it near me was obviously because the planes were grounded. I'm sure that NOAA took the unusual opportunity to examine the air quality at a number of larger cities, although I haven't been able to find the results anywhere. I'd have to guess that it wouldn't be a fantastically popular study if the planes were found to be a major contributor to metro smog. Need I add that the air downwind from the airport returned to gray the day the jets started flying, and I haven't seen the distant mountains since then? Initially, it took a couple of days for the skies to clear, but it dirtied back up the same day the jets flew.

" We really need to save the dwindling oil supplies for manufacturing. "

It's not dwindling supply .... its refining capacity!!! There's plentyy of oil just can be turned into product.

Bob

Bob - if only that were true. While the refining bottleneck in the US doesnt help matters there the problem runs a lot deeper than that. Check out energybulletin.net for a range of articles on the issue.

Personally I think folk are far too blase about the situation. Think oil at $100 a barrel and then think what that does to economies - and what folk do with their rapidly shrinking discretionary (ie spend on holiday) income.

It is a shame to burn all that oil for transportation when those wonderfully long carbon molecule chains can make so many cool long lasting product.
That's way I'm encouraging Joey to study polymer based nano technologies. There is enough oil for another 100 years....it is just going to get real expensive to extract it another couple of decades. We really need to burn H2 for fuel...it is the most plentiful substance in the cosmos.

Re: margins...I watch percentage movements....it is a much easier index to monitor then bill of materials. I track variable direct inputs like floor labor and resin separately from hard fixed cost like mortgages and soft fixed cost like electricity and discretionary cost like advertising and marketing incentives. With trending analysis I can track these moving streams of incomes and cost and formulate available resource allocations to offer incentives into the market to spur sales in our very seasonal and cyclical business....attempting to smooth production volumes through the seasons to keep the families that depend on my business in stabile weekly incomes, reduce my cost of training (and subsequent warranty issues) by keeping experienced builders fully employed, while building a stronger balance sheet with paid for assets, accumulating heavy cash reserves for difficult times (think 9/11) to protect my builders, my buildings, and my independent dealers who will need my products to sale in order to keep their doors open and their families and employees secure.
Sounds crazy doesn't it.

I'll stand by my "dwindling" comment. There's only a finite amount of crude on the planet, and we're (literally!) burning through it in record time. Yes, there's still quite a bit that we haven't explored, but new uses are being found for oil all the time. It's a major feedstock for drug production (no, not those drugs), plastics, and a huge number of other vital industries like electronics and agriculture. It's almost impossible for ANYONE reading this forum to go an entire day without touching products based on oil "Hey, really nice oak keyboard and mouse you have there, and the seaweed dress looks stunning!"

Just imagine all these industries failing 200 years hence 'cos we squandered such a valuable resource in our youth. I don't want our 10th generation grandchildren cursing my name for being a fool as the world falls apart around them. It will happen if we continue to ignore them and devastate non-renewable resources.

I'd much rather see us spend 50 billion $$ per year researching viable alternatives to oil's transportation uses, rather than some of the excessive spending that's the norm in our government today. True, solar conversion to electricity sucks in efficiency, but solar heating is extremely effective in many areas of the world, and would help to reduce burning oil for warmth. We need to invest in the future of the planet NOW so that our 20-times grandchildren can survive and flourish, or there's no point to our civilization. We have the ability to make a change, we just need the vision to DO IT.

[exit soapbox mode, I'm done]

I'd *really* like to get my 10 to 12 hour total flight time to Bonaire down to 2 hours. I'll be butt sore in another couple of weeks, and cursing the brain-damaged engineers that designed airline seats without sufficient lumbar support, with cushions designed by deSade. I could truly care less whether the seat turns into a flotation device in the event of an emergency ditch in the ocean at 200+ mph. What a crock of ....

The 'hydrogen' solution is also problematic - hydrogen is not a fuel per se its an energy carrier. You have to make the hydrogen first, which involves electrolysis which consumes electricity. To make the electricity you can a) burn fossil fuels (oops greenhouse gases - and those saying we have a ton of coal left, yes we do but it throws out a load of CO2), and we all now know oil and gas are dwindling b) use nuclear (lo greenhouse gases but what about the waste) c) use renewables (but the wind dont blow and the sun dont shine all the time). In addition just putting in the new hydrogen infrastructure (think of all the new H stations etc) would consume huge amounts of resources. Its maybe a 10-20 year away partial solution. We face a crunch of soaring energy prices in the 1-5 year period, and we cant go spewing out huge amounts more CO2 than we are already. Its a difficult conundrum, thats for sure

Wally...if only there was another 100 years of supply left. I'm afraid not even the most optimistic surveys are anywhere near that. If you have the time look through this article:
http://www.energybulletin.net/2544.html

I am a scientist and a great believer in the ability of technology to get us through - but the oil simply isnt out there anymore, thats why the big oil companies arent wasting their cash doing so much exploration anymore - they know there is precious little new to be found. The last super giant fields were found years ago, and we are now consuming far more barrels than we discover I'm afraid.

It seems to me that given the steady Trade Winds and almost constant sunshine, Bonaire is in a rather unique position to develop wind and solar energy alternatives and become something of a showcase/proving ground for those technologies. Such a showcase could prove the viability of these alternatives and improve the standard of living for locals as well as tourists with lower energy costs and air conditioning.

But I suspect that the powers-that-be may be too invested in fossil fuels and maintaining their monopolies to allow these enlightened alternatives.

Stan:

I think you mean, "In the unlikely event of a water landing..."

Ron - I agree and the thought occurred to me that they would be able to generate copious quantities of wind power - however I have never seen the wind turbine by Lac Bay actually working

There was also a wind turbine downtown in Kralendijk, just north of Divi, for many years. Never saw it turning; they finally took the thing down. Don't know why it wasn't used.

While talking about the price of crude oil today, consider the cost of production and the markup. The last time I read about it, the cost to the Saudi's of delivering oil shipside was about $2.80 a barrel; 'we' then paid $33 or so for that same barrel on the ship. Now it is up to $50+ with no change in cost of production. Very similar in all 'oil producing' countries. Ever wonder why no Saudi ever do manual labor??? Or why there is so much money available to fund terrorism??

It is known as an 'oil cartel'. Also as 'highway robbery' and 'soak the rich countries'. Unfortunately, they have us over a barrel unless the oil using countries band together and break the cartel (couldn't resist!). Can't see that happening any more than a major push for economy of use around the world. The latter worked to lower prices in '73; now we seem to be used to the idea of paying.

Often wondered about the wind generators....never seen the one at Lac Cai spin. Bearings and wiring salt toasted maybe?
I'm hoping the kids figure out something with H2 and fusion or they are in deep doo doo.
As for me...I'm to old to reinvent the world...I'm counting on the kids....I'll just build boats for a few more years and hang up my spurs.
Visions of 3 horned buffalo bears hanging out under interstate bridges a couple of millenium from now

I note American have announced a big raft of job cuts citing fuel prices as a prime reason:

http://uk.biz.yahoo.com/041023/323/f558k.html

Unfortunately a taste of things to come in my opinion. I really do think the authorities in all destinations 70% dependent on tourism had better start thinking this through, even if they believe there is only a small chance of an imminent oil crunch. I would certainly not be a buyer of a holiday property (or a retirement home) in a place that was so dependent on tourism unless viable alternatives to getting the punters there in the face of significant fuel hikes has been thought through.

Andrew:

I just don't think the direct effect on airfares will be that large. And the article you cite starts off by talking about dropping airline revenues rather than price increases.

While I don't know how energy costs ripple into all airline cost components (and they do -- at least at some level), jet fuel is only about 11% of their operating costs. So a doubling in fuel prices would tend to increase ticket prices by 11%. That is just not that large an increase when one considers the total cost of a vacation trip -- lodging, food, diving, rental car, etc.

Here is a typical vacation budget for my share of a two week trip to Bonaire (split with my brother):
1) Lodging, including taxes = $843
2) Car Rental (incl. taxes, insurance, etc.) = $300
3) Diving = $200
4) Airfare = $700

Total price $2,040. If the fuels price triples, the airfare might go up by $180 (assuming fuel is 15% of costs and the base fare is $600). So the total price of the trip is now just over $2,200. My options: a) pay 8% more for my trip -- for example by giving up one Sprite a day ($0.65/day would more than pay for it); b) shorten my trip by about 2 days (that would save approx. $160); c) rent a car for only half the stay (saves $150); or d) stay in a cheaper lodging choice.

OTOH, and if you are correct, then all segments of the economy are impacted -- food prices shoot up, home heating, gasoline, etc. The concerns there lean towards unchecked inflation and/or recession -- in other words *big* macro problems.

Think of it another way -- the extra cost of the plane ticket if fuel prices triple will cost you less than a price increase of $0.30 per gallon for gas. If gas went up by $3/gallon, that would cost you over $1,800 per year. [Assuming 12,000 miles per year at 20 mpg]. Which will you be more concerned about?

Back to airlines -- they are a pretty screwed up business at the moment and it is not fuel. Seats are all but a commodity -- lowest price tends to carry the day. And carriers, especially legacy ones, have very unequal cost bases (a very long discussion that could involve the impact of bad management decisions, the legacy of regulated airfares, and the "unfair" advantages offered by bankruptcy).

Even though many of the carriers really need to raise fares to cover costs -- the market just won't allow it. The demand for seats would probably stay up but the jet blues, SWA, Easy Jets, BMIs, et. al. will not go for the rate hikes.

So, what is left? Labor, fleet and yield management.

Many thanks for the reply David. You are absolutely correct, the ramifications of ever increasing fuel prices go far beyond the airline industry (ie recessions etc etc) - this introductory piece from the UK gives a flavour of the implications
http://www.powerswitch.org.uk/Downloads/pos.pdf

However it was the transport industry which I thought particularly relevant to Bonaire as essentially the economic health of the island is dependent on toursim and hence mass transport. If I might make a few points:
I dont necessarily think that the relationship between the cost of fuel and the cost of a ticket is a linear one. Thus whilst at its simplest level a $5 a gallon increase means the jet engine fuel just went up by $5, it also means that all the other cost inputs which the airline uses also just had to take a $5 increase in the cost of their fuel (the airline caterers, the airport authorities, the crew getting to and from work, even the plane manufacturers, ad infinitum). While the cost of the other inputs ie salaries etc can be varied (staff can be sacked, salaries cut), the cost of fuel is an absolute over which the airline has no control. Given the opportunity in a non competitive market I am pretty sure an airline would respond to a $5 fuel rise by a $20 seat hike if it could. However as many of the articles on the airlines make clear, almost all cite the 'intense competition' as another reason for their woes. But what happens when the competition eases as airlines go bust? (I think in the US we are closing in on that situation). How many times can a US airline go into bankruptcy protection before they call it a day? Ultimately this must lead to fewer airlines. Now I know everyone lauds S-West for what its brought to the US market, but what say one day they are the only carrier (as all the old 'dinosaurs' have fallen by the way). I think monopolies pass on costs in a much more aggressive way when they can get away with it (when they lack competition)

Andrew --

A few final thoughts. I agree the price relationship is not linear -- in fact it is both recursive and complicated. My point remains: if energy prices double or triple in the short to medium term (something I am not convinced of), the increased cost of a plane ticket isn't that big a deal to your pocket book -- but rather home heating, gasoline, food, etc.

In terms of the impact to Bonaire, all one has to do is look at the impact the asian recession had on tourism in Hawaii. And it wasn't the price of the vacation that was the problem. During recessions, discretionary travel drops.

I agree that monopoly pricing will always tend to be higher (and one could argue that many smaller markets already exhibit signs of that -- or at least oligopoly). And major airlines have already gone under -- TWA and Eastern come to mind. Still, we see not only SWA but Jet Blue and possible a new Virgin (and Song and...). So, I am not worried about SWA gaining a monopoly position on the major routes. Now on some of the less profitable routes and/or small cities...