Commercial Aviation and Global Politics - Korossy.org

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Korossy,
1


More history transpired in the 20th century than in any previous century, in terms
of technologies discovered, blood shed, states born and destroyed, cities built, and
peoples moved.

More happens every day than ever before, due to computers, automation,
i
nstant communication, and the unprecedented speed of travel. This last area was as
revolutionized in the 20th century as any of the others: in 1902, manned, powered flight
was a distant possibility, and was deeper in the realm of crackpot inventors than in

the
domain of science and engineering. In 1903, the Wright brothers demonstrated that flight
was
possible, even as countless of their late predecessors demonstrated that it was
dangerous to the extreme.
In 2000, over a billion passengers flew from one loc
ation to
another, making airlines by far the most popular form of long
-
distance travel, eclipsing
all others. Astronomers have been aware since the time of
Johannes
Kepler of the Law of
Conservation of Momentum: as a body’s circumference shrinks, its rotat
ion speeds up.
It
took Christopher Columbus two months to cross the Atlantic Ocean; the Concorde
allowed passengers to do the same in three and a half hours. The world has indeed
shrunk, and it continues to speed up. In considering international politics a
nd economics,
globalization, and the entire future of the human enterprise, commercial aviation is at the
heart of the modern world, even as it is affected by these very same factors. The aviation
industry is also a product of the very world it shapes, and

an understanding of the
production process gives insight into the future of both.


The focus of this paper is the commercial passenger transportation industry, the
market ruled by massive nati
onal and international airlines, as a force in international
ec
onomics and a product of the international political system. The spheres of economics
and politics are intricately interrelated, and international political economics is a fast
-
Korossy,
2

growing field in the era of globalism. One of the foremost scholars on the subj
ect is Dr.
Susan Str
ange, whose work has focused on the emergence of economic
actors as the
principle driving forces behind international political change in the 21st century. In her
seminal work
States and Markets
, Strange describes a fourfold framework o
f the
“market
-
authority nexus
,

1

arguing that the international economic
-
political regime is
shaped by forces operating through fo
ur “structures:” Production, Security, Finance, and
K
nowledge. These structures can be used not only to evaluate the world as
a whole, but
also individual markets

and industries.


Commercial

aviation is no exception. It, too, is dominated by four factors that
determine the market’s fluctuation: passenger demand, security considerations, fuel
prices, and technology.
This paper exp
lores the possibility of conflating these four factors
with Strange’s four structures

(Table

1)
.
By examining events and dominant paradigms
occurring
on the global

level

within these structures, the rela
ted factor may be expected
to react proportionally.

T
herefore, the behavior of the aviation industry may be
predictable on the basis of what may be termed
“global indicators:” social paradigms,
international events, trends, and the like.

After an overview of the four structures and
factors, this paper will e
xamine a number of

historical ca
se studies to establish the
correlation

and its nature.
Afterwards, the focus will turn to current events and trends
occurring within Strange’s structural framework, which will in turn allow, finally, an
explanation of the a
viation industry’s current state and its behavior in the near future.







1

Susan Strange,
States and Markets
, (New York: Continuum Internati
onal Publishing Group, 1998), p.

22

Korossy,
3






I. Structures and
Factors


A. The
Four Structures
.

Strange’s work is rooted in the concept of structural
power:
“the power to shape and determine the structures of the global political economy
within which other states, their political institutions, thei
r economic enterprises and (not
least) their
scientists and other professional people have to operate.”

2

This power,
however, is split along four main lines, and the bulk of
States and Markets

is devoted to a
full explanation of each.

Each component of st
ructural power is itself a structure, in that
each represents a broad field of action within which individual actors both act and are
affected by other actors. Each structure can be analyzed both individually and as part of
the whole.


The
p
roduction
struc
ture is “the sum of all the arrangements determining what is
produced, by whom and for whom, by what method and on what terms.”
3

That is, “it is
people at work, and the wealth they produce by working.”
4

It concerns itself with the
supply and demand of an e
conomy as a whole, as well as the needs and capabilities of
each individual within it. The production structure encompasses the literal means of
production, but in
a broader

sense
, deal
s

also with all those involved in the production
process.




2

Strange,
States and Markets
, p. 2
5

3

Strange,
States and Markets
, 64

4

Stra
nge,
States and Markets
, 64

Table 1: Factors and Structures

Strange’s Structures

Related Aviation Factors

Production

Passenger Demand

Security

Security Concerns

Finance

Fuel Prices

Knowledge

Technology

Korossy,
4


The
security

structure is “the framework of power created by the provision of
security by some human beings for others.”
5

It is not the provision of safety itself, but
also touches the power that is created by the one who provides the safety.
Wielding

the
threat of
re
voking
security,
a protector may also become an authority over a protectee;
conversely, a promise of greater security elsewhere may encourage the protectee to defect
to another protector.


The
financial

structure is “the sum of all the arrangements governi
ng the
availability of credit plus all the factors determining the terms on which currencies are
exchanged for one another.”
6

More broadly, it is the framework
covering the control of
wealth and resources, and the distribution of these, equally or unequall
y. Financial power
is the power to give or withhold from others the singular ability to “influence markets for
production.”
7

In a sense, it is the broader framework within which the production
framework operates, or rather, the structure which powers and e
mpowers the production
structure.


The
knowledge

structure “determines what knowledge is discovered, how it is
stored, and who communicates it by what means to whom and on what terms.”
8

It does
not govern simply the creation of information or discovery of
technology themselves, but
also their dissemination and promulgation. Knowledge truly is power; if one actor has
information which another actor desires, and if the other actor knows that this
information is to be desired and knows where to obtain it, then

the informed again has
coercive power over the ignorant. The central importance of the very act of transferring



5

Strange,
States and Markets
, 45

6

Strange,
States and Markets
, 90

7

Strange,
States and Markets
, 90

8

Strange,
States and Markets
, p. 1
21

Korossy,
5

knowledge, however, ought not to be overlooked either; the information revolution was
nothing more than an unprecedented ability to store, copy
, and transfer data at will.


These, then, are the four structures to be used as analytical tools in looking at
politics and economics both on the global and much smaller scales. Strange does not stop
here, however, arguing that in addition to structural p
ower, of which these are the
components, there are also secondary structures created by these and operating between
and amongst these in the modern world. These are, in fact, the very
infrastructures of the
modern world: the

frameworks of

transportation, e
nergy provision, welfare, and
trade.
9

It
is telling that Strange includes transportation here, drawing particular attention to air a
n
d
sea transit route
s
; the industry affects and is affected by the other structures.
Consequently,
the major factors that go
vern the successes and failures of the commercial
aviation industry can also be analyzed along the lines suggested by these four structures.


B. Four Factors.
At the core, airlines serve people, by moving them from place
to place.

In studying international

economics, it might be easy to forget that it is
individuals who are the basic economic actors, and governments and corporations are
only producers and consumers insofar as they are made up of people. The production
structure manifests itself in the aviat
ion industry as the basic business of
passenger
transit
. The “arrangements determining what is produced, by whom and for whom”
include travel arrangements, and the “people at work” who produce wealth need to
physically get to their places of work. I
n the a
ge of a global economy, economic actors
need to move farther and faster than ever before, and this creates the greatest demand that
airlines exist to supply.

As the world economy continues to grow and integrate, this
demand will only increase.




9

Strange,
States and Markets
, chapters 7
-
10.

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6


Wherever th
ere are people, however, there are problems. If there are states,
classes, religions, ideologies, or ethnicities with disparate interests, there are frictions that
will escalate into violence. Security is a basic human need, and a
s stated earlier, a

basic
structure of the global economic and political systems. The airline industry, dealing with
a billion individuals every year, is constantly aware of the need to ensure their safety. In a
world acutely aware of the possibility of using aviation for destructi
ve purposes,
security

truly is the first priority in the business.

This is not only to protect assets and passengers,
but also to generate trust: even though there have been no successful passenger jet
hijackings since 2001, the months following September
11 saw a dramatic decrease in
passenger traffic, due to the mere impression of a lack of security. History indicates that
it is only a matter of time until an airline experiences another terrorist attack, so the
industry must learn to balance this ever
-
pre
sent need with consumer convenience and
speed of service.


In the world of international finance, there is perhaps no commodity as valuable
and as rare as oil; at the least, it is one of the most important markets worldwide. The
production of oil today is
dominated by a small cartel of resource
-
rich states that have
enough combined output to largely control the overall price worldwide. Airplanes
consume massive amounts of fuel, and so all aviation is reliant on the continued flow of
oil. The international f
inancial structure is manifested here as the availability and price of
fuel
, and the global commercial aviation industry is entirely reliant on the global oil
market.


Finally, it must be remembered that aviation is an entirely new industry; a
hundred year
s ago, powered flight was a young, unreliable, cutting
-
edge technology that
Korossy,
7

needed

years of evolution to be viable
even
just
for military use, and decades to become
useful for
commercial

purposes. The aviation industry is prone to revolutions brought on
by

technological advances. The Wright Flyer flew for a distance shorter than a Boeing
747 fuselage, and no one knows what the next hundred years will bring. The knowledge
structure governs the discovery, storage, and dissemination of
technology
, and advances

in this field govern
,

unpredictably
,

the

future of commercial aviation.










II.
Towards a Structural Model of Commercial Aviation: Historical Case Studies


A. The Production
-
Passenger Structure.
Commercial aviation, in the scope of
the discussion
, is the business concerned wi
th moving passengers from one location to
another using airplanes.

Passengers are the purpose of the industry, without
whom

it
ceases to exist. It was not, however, always so. The military implications of flight had
been apparent from the advent of the fir
st hot
-
air balloons, which were used in the US
Civil War as well as the Franco
-
Prussian War. With the maiden journey of the Wright
Flyer, the advantage of fast
-
moving, easily navigable flying machines over leisurely

Table 2: Correlating


Factors and Structures

Production

Passenger
Demand

Social
Circumstances

Security

Security
Concerns

Security
Threats

Finance


Fuel Prices

Oil Prices /
Avai
lability

Knowledge


Technology


Technology

Aviation
Factors

Global
Factors

Korossy,
8

balloons was also instantly apparent. Th
eir widespread use during World War I
demonstrated this without leaving room for doubt, and immediately after the war,
European governments began subsidizing air travel companies that made use of primitive
open
-
air aeroplanes to move
one or two passengers
at a time short distances. These would
have been commercial unviable efforts were it not for the subsidies, which in some cases
accounted for 70% of flight costs.
10

The Republican

Party’s

government in the
US was
unwilling to become

as involved, and so pass
enger air travel was limited to $5 novelty
rides.
11

The promise of the new form of transportation was not lost on Americans;
however, it translated only into mail and parcel delivery service.
12

In the rapidly
globalizing economy, air travel was worthless.


W
ith the Contract Air Mail Act of 1925, the
US Post Office

gained

the honor of
being the first regulatory body of aviation in America. Airlines could bid on airmail
contracts, allowing them the exclusive right to fly mail along specific routes.
13

This
heavy
-
handed government involvement
upset one
Juan Trippe
, an enterprising aviator
who wished to run his company on his own terms. To escape the bureaucracy of interstate
transit, he
instead began establishing a monopoly on international air mail routes. His
ven
ture was unprofitable; to offset operating costs, he installed wicker chairs in his planes
and began taking passengers.

Passengers soon began to line up for short flights to Cuba
and Puerto Rico, and in 1935, China.
14




10

T.A. Heppenheimer,
Turbulent Skies: The
History of Commercial Aviation
, (Hoboken: John Wiley &
Sons, Inc.
,

1998
) p
p
. 6
-
7

11

Heppenheimer,
Turbulent Skies
,

p.

5

12

Heppenheimer,
Turbulent Skies
,
p.
8

13

Heppenheimer,
Turbulent Skies
, p. 11

14

Thomas Petzinger, Jr.,
Hard Landing:
The Epic Contest for

Power and Profits That Plunged the Airlines
into Chaos
, (New York: Three Rivers Press, 1996), p
p
. 6
-
7

Korossy,
9


As technology improved, planes could f
ly farther, faster, more comfortably than
ever before, and by the end of the 1930s, flight and flights were reliable enough that the
airways became a true alternative to the railways.
15

Initially an afterthought, passengers
soon
began making up the bulk of
airlines’ profits. Airmail contracts became certificates
of monopoly, to be purchased by the company from the government rather than the other
way around; during the Roosevelt administration, the competitive bid price dropped to
$0.00 per pound of mail per

mile.
16

The airlines were not bidding to carry mail anymore,
but for the right to fly specific routes between cities
, using mail to justify their
existence
and carrying passengers

to guarantee profit
. This
de facto

arrangement became
de jure

in
1938 with t
he Civil Aeronautics Act of 1938, which cemented the government’s role as
being the regulator of
interstate
commercial aviation, with power to control planes, fares,
and routes, a situation which would remain unchanged until deregulation forty years later,

in 1978.
17


The demand for high
-
speed long
-
distance transportation was the creative force
behind the modern commercial airline industry. The continued growth of this demand
ensures that the industry will remain thriving, and profitable. However, businesses

can
only benefit from demand if they can meet it with supply. In the era of regulation, this
meant simply providing passengers with planes. Pre
-
established fares and designated
routes allowed carriers to compete only in the realm of comfort and amenities.

Customers
chose airlines not based on convenience or price, but on the basis of image and
experience. After de
-
regulation, consumers were given much more freedom of choice, an
increased flexibility which led to greater specification in demands.




15

Heppenheimer,
Turbulent Skies
, 72

16

Petzinger,
Hard Landing
, p. 1
4

17

Petzinger,
Hard Landing
, p. 1
4

Korossy,
10


The basis

for regulation could be found in Congress’s power to regulate interstate
commerce; airlines that did not cross state boundaries could operate freely.
One such
upstart was Southwest airlines, completely contained in Texas at the time of its launch.
18

Southw
est was launched by a handful of industry outsiders
, forced to build their business
from the bottom up instead of following the norms of the carriers that had been
established half a century before. CEO Herb Kelleher sought to model his company,
therefore,

on his own personal beliefs of what the flying experience ought to be.
Southwest was born in 1973; unregulated interstate aviation became a possibility in only
five years, allowing for Southwest to begin expansion before it had time to settle into a
corpo
rate strategy. The result was
a mere extrapolation of its tiny intrastate system:
19

a
decentralized
network of independent routes where
most
point
s

were
linked with
most
others.
20

This approach is based on passenger convenience, valuing it even above
maximiz
ation of carrying capacity. The prevailing model of post
-
regulation route
network redesign amongst the nation’s leading airlines involved the establishment of
“hub
-
and
-
spoke” systems, wherein all minor destinations within a region were linked to a
central
airport, which then was connected to other regional hubs nationwide. Unless they
sought only to fly to their own regional hub, passengers could count on at least one, and
often two additional “connecting” flights. The interregional routes could thus always

expect to be near full capacity, while also reducing the number of flights to the most



18

Kevin Freiberg and Jackie Freiberg,
Nuts! S
outhwe
st Airlines' Crazy Recipe for Business and Personal
Success
, (New York: Broadway Books: 1998), p. 16

19

Freiberg and Freiberg,
Nuts!
, 49. The Southwest executive team, faced with the prospect of interstate
travel, held a two
-
day meeting to arrive at a visio
n of what the company would be when it “grew up.” The
result was that the company “should stay focused on the fundamental strate
g
y that got it off the ground in
the beginning.”

20

Freiberg and Freiberg,
Nuts!
, 51

Korossy,
11

efficient minimum possible
.
21

This might make sense in the regulated world before 1978,
but Southwest’s decentralized model was, instead, based on consumer’s newfound
po
wers to choose: “customers
with a choice

don’t want to go out of their way and travel
to a hub city for the convenience of an airline that wants to fill planes.”
22


The other
great

unorthodox tenet of Southwest’s unique business strategy lay in
its manipula
tion of fares.
Supply
-
and
-
demand indicates that when demand is high, prices
rise; when demand is low, prices fall. Southwest sought to fix prices at their lowest
possible rate, and then
modulate

supply based on market conditions; increased demand
led to in
creased flights, low demand led to less.
23

This allowed the company to maintain a
perpetual edge on its competitors fare
-
wise, which of course led to high popularity. The
tradeoff was in the upstart’s share of the market; many cities were not serviced, many

others were serviced less by Southwest than its competitors. Kelleher made this sacrifice
gladly. As he explained, “Market share has nothing to do with profitability. . . . Market
share says we just want to be big, we don’t care if we make money doing it.

24

Instead,
Southwest found and maintained its “niche,” aggressively defending it by providing the
lowest fares possible and not concerning itself with expanding at the cost of spreading
itself too thin.
25


At heart, the difference between the stodgy Old G
uard and the young Southwest
was a reflection of the worlds they had grown up in: the former in the uncompetitive,
regulated industry, the latter in the unregulated free market of consumer choice.



21

Freiberg and Freiberg,
Nuts!
, 51

22

Freibe
rg and Freiberg,
Nuts!
, 52 (emphasis added). Other reasons are discussed as well; Southwest seeks
to maximize air time, while other companies seek to maximize capacity. This point, due to its subtleties, is
explained in greater detail than customer conveni
ence, but, it is admitted, “Extra time in the air is just part
of it.”

23

Freiberg and Freiberg,
Nuts!
, 53

24

Freiberg and Freiberg,
Nuts!
, 49

25

Freiberg and Freiberg,
Nuts!
, 49

Korossy,
12

Southwest’s emphasis on passenger convenience proved to be
the key to success: in the
recession and oil crisis of 1990
-
1994, Southwest was “the only airline to be profitable”
while “the airline industry lost more money than it had made in the previous sixty
years.

26

Indeed, “Southwest Airlines is the only U.S. air
line to earn a profit every ye
a
r
since 1973,” with net profit margins that have been “the highest in the industry.”
27


It goes without saying that aviation is dependent on passenger demand, but it is
easy to underestimate the power consumers have to shape t
he industry.

Airlines can tap
into passenger demand only if they provide the comfort and convenience that is now
being demanded.
After the end of regulation,
it was these

specific
demand
s that

brought
long
-
established business models to a rapid and furious

demise, entirely transforming the
industry and the norms that had governed it for forty years.
Two airline models have
emerged: the reformed “network carriers,” that draw on an extensive and far
-
reaching
route network to transport passengers; and low
-
cost

carriers, who boat a convenient if in
some ways limited point
-
to
-
point system.
Patterns of consumer demand continue to be
the greatest force shaping the industry.


B. The Security Structure.

A billion people travel billions of miles every year
while suspe
nded six miles in the sky. An enterprise of such enormous ambition is going
to carry, by necessity, monstrous requirements for safety and security. Relative to other
means of long
-
distance transportation, commercial jets are, by far, the safest, and only
s
everal people per million die per year in aircraft
-
related casualties. Yet, the

extraordinary nature of air travel makes security not only a concern but the primary
concern of passengers. Few people consider fatality statistics when they climb into a car



26

Freiberg and Freiberg,
Nuts!
, 4

27

Freiberg and Freiberg,
Nuts!
, 4

Korossy,
13

o
r first learn to drive; it is
quite common to hear, however, of a “fear of flying” or to
encounter someone who prefers avoiding air travel. In many respects, security is more a
psychological benefit than a real concern. Unfortunately, if the airlines do th
eir job well,
no one will notice; what will be remembered are the handful of times throughout the
years when there have been lapses.


In its earlier

years, aviation carried a certain expectation of risk.
In the 1930s, the
pressurized cabin was unknown, and

passengers would routinely black out on trips over
the Rocky Mountains. The risk of death was

so much greater than today that
airports
often had “aviation insurance” vending machines


a quarter
or more
would buy
a receipt
of insurance which would then be

handed to a non
-
flying family member or associate.
28

It
was an uncommon but not unheard
-
of occurrence that a would
-
be passenger would be
killed by walking into a moving
propeller
.
29

As technology improved, so did comfort and
safety levels, until aviation tr
uly began entering the mainstream in the 1940s and 1950s.
Once flying was no longer restricted to adventurers and risk
-
takers but attracted regular
travelers and families,
30

any risk became an unacceptable risk, and any incident would be
burned into the fly
ing public’s mind as a warning. The airlines had to maintain certain
standards, or die along
side their passengers
.


Several historical cases illustrate this. One of the first safety crises in the era of
modern aviation occurred
in 1954
when
a British aircr
aft, the de Haviland Comet,
crashed over Europe en route to London. The crash was spontaneous and dramatic; the
plane burst into a fireball and plummeted. The accident was largely ignored, until another
Comet crashed two weeks later in much the same way. T
he cause turned out to be metal



28

N
ational
Air and Space Museum, “America by Air” exhibit (2008)

29

Heppenheimer,
Turbulent Skies
, p. 2
4

30

s
ee Heppenheimer,
Turbulent Skies
, p. 1
24, for aviation popularity gains during this time.

Korossy,
14

fatigue, flight stresses accumulating over time to result in cracks along the fuselage that
let the aircraft be ripped apart by the internal/external pressure differences differentials at
high altitudes. The problem could be

monitored and corrected; nonetheless,

the British
government had all Comets
grounded and decommissioned, and it took four years for the
craft to be redesigned into something flightworthy
, which was by then out
-
of
-
date
.
31

Such
reactionary overcorrection was

to become the norm in aviation.


Another significant incident was the Grand
Canyon Crash of 1956, when two
passenger liners collided over the fissure in mid
-
flight. They were both jet
-
powered,
which was then a novelty; previously, aircraft could reasonabl
y rely on pilots’ sight to
avoid collisions, but jets proved to be far too fast for such simple surveillance.
32

This
time, the US government intervened, demanding that all airports be equipped with new
long
-
range radar equipment, and all flights be monitore
d from gate to gate.
33

In both this
case and the Comet disasters, the national governments immediately stepped in, found
out the problems, and cleaned up the messes. By the 1960s,
American airways were
regulated by an army of air traffic controllers, and ne
w aircraft were subject to thorough
examination and rigorous testing for a number of flaws which had not been previously
considered. The one element of risk that could not be governmentally controlled was the
human factor, and it was this which truly chang
ed the focus from improving safety


now
at an all
-
time high


to ensuring security.


Hijacking an aircraft for various purposes was as old as passenger aviation itself,
but it was in the 1960s that it became a mainstream phenomenon. In 1968, after a white
-
collar criminal successfully diverted a domestic American flight to Cuba, sixteen more



31

Heppenheimer,
Turbulent Skies
, pp. 1
58
-
160

32

Heppenheimer,
Turbulent

Skies
, p. 1
79

33

Heppenheimer,
Turbulent Skies
, pp. 1
80
-
181

Korossy,
15

hijackings took place, of which thirteen succeeded. This number more than doubled the
next year, but these were all still petty criminals looking for extortions or esca
pes. That
same year, however, Muslim terrorists seeking to serve the Palestinian cause captured a
747 in
-
flight, landed and evacuated the passengers, then destroyed the plane. Three more
attacks of the same
modus operandi

were perpetrated the year after th
at.
34

None of these
attacks, either the criminally or politically motivated, had resulted in passenger casualties.
In 1976, Palestinian hijackers attempted to isolate and kill all Jewish passengers aboard a
flight, but even this fatal act of terror was poin
ted at one specific group, not airline
passengers in general.
35



The most famous terror attack on a pass
enger aircraft was the 1988 Pan
Am
bombing. A Boeing
-
747 carrying 259 passengers was bombed

over Scotland, killing
everyone on board and eleven on the
ground. The bodies were hideously mutilated by the
explosion and fall, and the story broke immediately worldwide, only four days before
Christmas.
36

Aviation historian Thomas Petzinger, Jr. explains,

“The public was quickly forgiving of most aviation disast
ers, but not this one.
This was a terrorist bombing, executed with cold
-
blooded, pinpoint precision.
There was nothing random about it; it was plainly an anti
-
American act.
Suddenly, anyone contemplating an international flight on Pan Am


Pan Am,
that sym
bol of American influence across the globe


found himself weighing the
odds of survival en route.”
37


In actuality, passenger deaths per capita were at an all
-
time low in 1988, with only a little
more than one death per four million passengers.
38

Nonetheles
s, widespread panic
spurred

widespread mistrust, to immediate effect: “In a matter of hours the airline lost



34

Heppenheimer,
Turbulent Skies
, pp. 2
73
-
275

35

Heppenheimer,
Turbulent Skies
, p. 2
76

36

Petzinger,
Hard Landing
, pp. 3
58
-
359

37

Petzinger,
Hard Landing
, p. 3
60

38

Steven A. Morrison & Clifford Winsto
n,
The Evolution of the Airline Industry
, (Washington, DC:
Brookings Institution Press: 1995), p. 32 (fig. 2
-
16).

Korossy,
16

half its transatlantic bookings. In the days ahead more reservations disappeared. Nearly a
half
-
billion dollars’ worth of business went away, and t
here were no new reservations to
replace them.”
39

Pan Am had been in a steep, decade
-
long decline, which had finally
started to abate under a new, optimistic CEO

determined to pull it out of the red
. Within
weeks,
that same CEO announced that Pan Am was up
for sale, and within a year, the
first truly global airline had entirely vanished.
40


The same security panic occurred on a much larger scale immediately after the
September 11, 2001 hijackings. Here, planes had not only been the targets, but also the
weapo
ns: four commercial jets were hijacked and then redirected onto suicide courses.
One crashed in rural Pennsylvania, due to passengers overwhelming the terrorists. One
crashed into the Pentagon in Alexandria, Virginia, doing significant damage. Two other
hi
t the World Trade Center “Twin Towers,” toppling both. The Pan Am bombing had
incurred 270 deaths; the 9/11 attacks, as they would be known, resulted in more than
3,000. Within hours, all commercial planes in US airspace were grounded and remained
so for a
ll that day and the next, an operation without precedent.


After this immediate and enormously costly jolt, the airlines as a whole
underwent an experience akin to Pan Am: by September
15, US air travel bookings were
down 74%, and globally down 19%.
41

Full
recovery was not reached until 2004
,
42

but at
enormous cost: between 2001 and 2006, more than twenty airlines filed for Chapter 11



39

Petzinger,
Hard Landing
, p. 3
59

40

Petzinger,
Hard Landing
, chapter 16.

41

Peter Spence Morell and Fariba Alamdari,
The impact of 11 September

on the aviation industry:

Traffic, capacity, employment and restructuring
, (Geneva: International Labour Office: 2002), p. 1

42

Don Phillips, “
Three Years On
:

Sept. 11, 2001 : Airline turbulence from 9/11 goes on
,”

International
Herald Tribune
, September 9
, 2004, p. 1

Korossy,
17

bankruptcy, including four of the six largest.
43

Between 2001 and 2003, the industry as a
whole lost over $23 billion.
44

This pu
blic reaction, though devastating, came as no
surprise to anyone.
The fall of Pan Am had demonstrated the destructive power public
panic wielded over the industry. Security had never been greater in the history of aviation
than it was in the second half of

September, 2001; nonetheless, the image of the
collapsing American icons could not be erased from would
-
be passengers’ minds.


Security is fundamental to all passenger transit, but in commercial aviation, the
role of consumer
perception

of security is mor
e central to success than
actual

security.
There is perhaps no safer time to fly than immediately after such a crisis; all means of
stemming future threats are freshly implemented and at peak efficiency. Nonetheless,

passengers will refuse to fly outside o
f any rational reason for doing so. It seems that
security cannot have a positive function in increasing passenger revenue, only a negative
role when it fails.


C. The Financial
-
Fuel Structure.

Airplanes run on fuel, which is a mixture of
oil, which costs
money. Therefore, the higher the price for oil, the more expensive it is to
fly planes. That translates into higher costs for passengers, which economic laws translate
into fewer passengers, which in turn causes the airlines to lose money or, at the very
l
east, make less money than they otherwise would.

Recent scholarship has pointed out
that variations in fuel prices have a greater effect on fares than any other factor
.
45

Other



43

Glenn Tilton,
speech

at
Aviation’s New Flight Plan: Innovation
, Adaptation, and Consolidation
,

hosted
by U.S. Chamber of Commerce, Washington, D.C., 04/03/
2008.

44

Phillips, “Three Years
,”

2

45

Morrison and Winston,
Evolution
, 99 (table 5.1).

Korossy,
18

studies by the Seabury Group indicated that fluctuations in the price of oil hav
e a 94%
correlation with inverse fluctuations in airlines’ market value.
46


David Barger, CEO of JetBlue, explains that when oil prices increase, the airlines
are, in effect, held hostage: they have “no levers to pull” to fight back, they can only
respond b
y trimming expenses in other areas and trying to maximize the efficiency of
their route networks.
47

The international circumstances of the oil market translate directly
into increases and decreases in airlines’ overheads.
This is the simplest relationship
b
etween the economy and the commercial aviation: if oil’s price increases, the industry
suffers.


D. The Knowledge
-
Technology Structure.

Though the need for transportation is
as old as man, the various means of transportation beyond mere walking have all be
en
reliant on technological advances. At the beginning of the 20th century, flight was still a
dream, and not necessarily a realistic one at that. By the end, hundreds of passengers
could be transported at speeds faster than sound.

Aviation is a technology
, and its history
during the past century reflects the great rapidity of technological advances during that
same period.


The earliest advances in aviation came before the passenger market opened in
proper. Enclosed cockpits,
radical new engine designs
, an
d a continental system of
navigational aid lights
48

did much to increase the safety of flight.
It was primarily after
these early leaps that the industry became attractive to the public as a legitimate means of



46

Mark Shulte,
“The Business of Aviation: A Five
-
Year Industry Growth Plan”, presentation at
Aviation’s
New Flight Plan: Innovation,
Adaptation, and Consolidation

hosted

by U.S. Chamber of Commerce,
Washington, D.C., 04/03/
2008.

47

David Barger, speech at
A
viation’s New Flight Plan: Innovation, Adaptation, and Consolidation
, hosted
by U.S. Chamber of Commerce, Washington, D.C., 04/03/2008.

48

Heppenheimer,
Turbulent Skies
, pp. 3
9; 40
-
44; 10
-
12

Korossy,
19

transportation; more advances would need to oc
cur in speed and range before the first
great passenger booms at the end of the 1930s. The
China Clipper
, launched in 1934,
combined both in a plane that could fly from San Francisco to Manila in a manner of
days,
49

and offer its passengers luxuries akin to

an ocean liner along the way.
50

Technology bred success: the
Clipper

entered the mainstream and became a public
sensation, inspiring even an eponymous movie starring Humphrey Bogart.
51

For all that,
its first months of service saw only two flights after its

maiden journey, and those
carrying mail alone, as there were not yet the proper infrastructures in place to carry
passengers. Here was an illustration of the great truth behind technology in aviation: as
far as the public is concerned, the important thing

is the technology itself, not the
practical implementation.


So it was in the jet race, the industry
-
wide push to
move beyond propeller
engines.
Jets had been in use in the Second World War, the first being
installed on
a
German
-
model fighter.

Immediately

following the war, plans were being laid to adopt the
new engines for commercial use. The British introduced the jet
-
powered de Havilland
Comet in 1949, which inspired a near
-
panic in the US on account of “their inroads on the
prized world market.”
52

The C
omet, however, crashed first literally and then figuratively,
and the jet age proved to have an abortive start. The market was again open, and thriving.
Boeing introduced the jet
-
powered Dash
-
80 in 1954, a full five years after the Comet.
McDonnel
l launche
d the DC
-
8 four years after that. After the demise of British jets, Pan
Am was the first to launch a successful jet
-
powered route in 1958.




49

Petzinger,
Hard Landing
, p. 1
2;
Turbulent Skies
, 70

50

National A
ir and Space Museum, “America by Air” exhibit (2008)


51

Heppenheimer,
Turbulent Skies
, p. 71

52

Heppenheimer,
Turbulent Skies
, p. 1
56

Korossy,
20


The birth of the Jet Age demonstrated the role of technology in consumer
aviation. The Comet was an unsafe aircraft;

the turbojet was too young a technology to be
completely predictable in all its effects. Engines were enormously costly to build and
maintain, making jet planes three to four times more expensive than same
-
generation
propeller
-
driven planes.
53

Moreover, pr
opeller planes could fly the same routes as the
first generation of jets promised to do; they were not in any way obsolete. Nonetheless,
Juan Trippe at
Pan Am placed an order for forty
-
five new planes: “while jets may offer
dubious economics, their popular

appeal was vivid and unmistakable.” As Boeing’s
CEO,
C.R. Smith,
commented
at the launch of the Dash
-
80: “We’re going to make the best
impression on the traveling public, and we’re going to make a pile of extra dough just
from being the first.”
54

Simply pu
t, between a jet and a propeller plane flying the same
route, the public would overwhelmingly choose the jet, simply for the sake of its novelty
and futuristic appeal.


This same concept was the driving force behind the supersonic race.
Here again,
militar
y achievements paved the way for commercial advances. Chuck Yeager made the
first verified supersonic flight in 1945
; as soon as jets made the leapt to commercial
aviation with the Comet and the Dash
-
80,
attention began to shift to the possibility of
super
sonic travel, as well.
This was only natural; the technology and capability were
already well established by the time Trippe began jet
-
powered transatlantic service. In the
1960s, the British and
French governments entered into a treaty to arrange for the
design
and production of a supersonic transport plane (SST). The Concorde, as the project came
to be called, made use of the most cutting
-
edge technologies, and still required years of



53

Heppenheimer,
Turbulent Skies
, p. 1
63

54

Petzinger,
Hard Landing
, p. 1
7

Korossy,
21

testing and re
-
designs. It made its maiden flight in 1969, and did not
enter service
until
seven years later, in 1976.


The Concorde, even in its pre
-
production phase, so captured the public eye and
imagination as to spark rival projects in the Soviet Union and US. The USSR developed
the Tu
-
144, which was first tested success
fully at supersonic speeds in the same year as
the Concorde, while the US contracted with Boeing to build the B
-
2707. This latter
project
was nothing more than a direct answer to the breakthroughs being made
elsewhere in the world.
President Kennedy
, in a
commencement speech at the Air Force
Academy, stated bluntly that the US government ought to “immediately commence” a
project to build a “commercially successful supersonic transport, superior to that being
built in any other country in the world.”
55

What f
ollowed were years of setbacks and
hardships; by the time the B
-
2707 project was finally cancelled completely in 1971,
Boeing was on the verge of bankruptcy and collapse.
56


The factors that had led to the cancellation of the American SST were many and
diff
icult.
Noise, e
nvironmental concerns, weight, extreme temperatures and stresses, and
ultimately cost all combined to torpedo the attempt.
These problems were universal, and
certainly hampered the European project as well. The Concorde was notably less
ambi
tious than the 2707, as Kennedy’s speech indicated, and so was able to sidestep
some of these problems (also facing less pressure from environmental groups, which
were less powerful in Europe than they were in America at the time).
57

The Concorde
was costly

to operate, and even with full bookings tended to toe the line between profit
and loss.

Ticket prices were exorbitant, costing far more than a first
-
class ticket would for



55

Heppenheimer,
Turbulent Skies
, p. 2
08

56

Heppenhe
imer,
Turbulent Skies
, p. 2
26, Ch. 9

57

Heppenheimer,
Turbulent Skies
, pp. 2
42
-
244

Korossy,
22

the same trip. Nonetheless, passengers poured in, hoping for a chance to fly on the

legendary SST.


Here, as with jets, transatlantic rivalries played an immense role in bringing
dream projects to fruition. These technology races were not national security concerns, as
the Cold War arms races occurring simultaneously were. Rather, they w
ere
manifestations of the public’s demand for ever more wondrous experiences. Fascination
with aviation is already fascination with advanced technology, and naturally leads to the
sort of mentality that Boeing, Pan Am, and even national governments played
into. This
is a fantastic resource for the commercial aviation industry; being the first to offer some
novel service or service in a novel way will lead to almost guaranteed successes.

It is not,
however, powerful enough to contradict the other laws gover
ning the business: the
Concorde, even while popular, was never the bottomless pot of gold its producers
envisioned it to be. In 2006, the Concorde was grounded, having ultimately failed
commercially. Perhaps, like the Comet in its time, SSTs will again fly

someday.
Current
technology
, however, is adequate for the safe and efficient movement of over a billion
passengers every year. What new technological advances will be made is impossible to
predict, but they are sure to rock the aviation world.


III. Devel
oping a Predictive Model


Aviation is dominated by four factors: passenger demand, security concerns, fuel
prices, and implementation of technology. These factors, in turn, fall under the regimes of
four
much broader
“structures” that dominate internationa
l politics and economics: the
production, security, financial, and knowledge structures,
respectively. Any change in the
Korossy,
23

status quo in any of these structures will have an effect on commercial aviation in the
prescribed area. By an examination of specific
historical case studies where global events
or paradigms had ripple effects in the industry, it is possible to develop a model of
commercial aviation as a product of these four structural factors.


Passenger demand is the basic driving force of the industr
y. Ticket sales depend
on the acuity of that demand. Specifically, passengers will flock to the airlines that give
them the
best balance of

convenience and price. Demand is a fairly stable force; it has
been on a steady rise, with minor bumps, since the la
te 1930s. As long as

it maintains its
current pace, the airlines as a whole will continue growing.


Security is important both to protect airlines’ property and to keep passengers’
trust, which is frail. A single hijacking will cost the victim airline the
price of a lost plane,
but will cost them untold millions more in lost passengers, consumers who themselves
suffered no harm and want to keep it that way. The trust built up over years of safety will
instantly evaporate upon a single, isolated incident. Th
e greater the threat of such
incidents, the more the airlines will spend on ensuring the safety of their passengers, and
the less those same passengers will want to fly.


Fluctuations in fuel prices cause proportionate fluctuations in air travel prices.
Th
e higher the cost of oil worldwide, the higher the average cost of a ticket. A decrease
in oil supply or an increase in demand across the board will have similar results.



Techno
logical advances not only have the potential to improve the safety,
efficienc
y, and experience of flight, they may also spur consumer interest in the
technologically
-
based aviation industry. Technological breakthroughs are impossible to
predict, so this serves as the great “wild card” in the future of aviation. Nonetheless, this
Korossy,
24

Fig. 1

is

the only area that is guaranteed to steadily improve with time, and
it
can only benefit
the industry. Moreover, the true determinant of its affect is the abilities of various airlines
to implement appropriate technology at appropriate times, not
just
the
raw discovery of
new knowledge.


Essentially, then: a
irlines are concerned with moving passengers from one
location to another using airplanes. This requires passengers to be moved, the
ensuring

of
their safety, the airplanes to move them
,

and the fuel
to
fly those planes. Passenger
demand
for
flight

is generally constant
, except:
more so when technology provides some
increase in flight experience;
less so when fuel prices sp
i
ke ticket prices, and far less so
when security is a consideration
, but both of th
ese

negatives

may be mitigated by
technological breakthroughs.

Passenger demand is mediated by the ability or inability of
an airline to meet that demand.






This model may also be expressed formulaically:






Table 3: Factors Affecting Airline Success

Positives

Negatives

Passenger Demand

Technological Nove
lties


Technological Mitigators


Ina
bility to Meet Demand


Security Concerns


Fuel Prices


Korossy,
25


The model’s parsimony should be
considered

an advantage

rather than a
liability.
The ultimate goal is t
o predict the industry based on global indicators, so
only those
factors affecting aviation that can be tied to external forces
.

It
does not
incorporate
factors that arise from and are completely contained within the industry itself, such as the
behaviors
of

executives
and unions
, which

are entirely unpredictable
.
The only exception
to this is the heading of “Ability to Meet Demand”, which refers primarily to airline
structure, specifically network (hub
-
and
-
spoke) versus low
-
cost (point
-
to
-
point). These
are

two fundamentally different types of airlines, and respond to the market i
n
fundamentally different ways,
as seen in the case of Southwest).


IV. A Structural Overview of Current Events


A. The Production
-
Society Structure
. The
international
production st
ructure
rests on the shoulders of the producers.
This term is not to be understood in a limited
Marxist sense of laborers and farmers, but all individuals and groups who have a hand in
perpetuating the international economy, or touch any of its parts. The
production
structure comprises the vast majority of the earth’s population, and all citizens and
residents of first world countries. This includes

the largest swaths of societies worldwide,
so societal paradigm shifts, and their causes, have a deep impact
on the structure itself.


The dominant paradigm in global society today is indisputably the phenomenon
of “globalization.” Unfortunately, the exact meaning of “globalization” is

greatly
disputed. Somehow or
other, it has to do with the increasing interconn
ectedness and
interdependence of people and societies that are geographically disparate; the details of
the term are not the focus of this study.
The fact of the matter is, telephones and cell
phones, computers and the internet, cargo ships and passenger p
lanes have all contributed
Korossy,
26

to making geographical distances much more surmountable and therefore much less
important in terms of communication and transportation. As individuals have an
increased and increasing
capacity for interactions with other individu
als, the speed of
societies’ activities


commerce, research, warfare (to borrow Strange’s other three
structures)


is also faster than ever before, and accelerating.


Thomas Friedman famously postulated that globalization is “flattening” the
world, creat
ing an era in which all individuals worldwide are actors on an increasingly
level playing field.
58

He devotes the bulk of his appropriately
-
titled thesis,
The World is
Flat
, to describing how totally interconnected seemingly far
-
flung individuals and
indust
ries have become, paying special attention to the unprecedented give
-
and
-
take
between the First World and what was once the Third. As he explains, the previous
“waves” of globalization that occurred


the era of colonial empires, the age of
multinational c
orporations


were fueled

by states going global and companies going
global, respectively. In the new wave of globalization, the driving force is “the newfound
power for
individuals

to collaborate and compete globally.”
59

That is, previously, the
only relev
ant actors on the global stage were groups, either states or non
-
state corporate
bodies. In the modern world, the individual
as

an individual and not as part of a group
has become as important an actor, and in some cases more important, than these previous

forces.


All t
his leads to a remarkable new
self
-
consciousness
on the part
of the globalized
i
ndividual. Friedman offers the hypothetical musings of a thoroughly globalized worker:




58

Thomas L. Friedman,
The World is Flat: A Brief History of the Twenty
-
First Century

(2nd Edition),
(New York: Farrar, Straus and Giroux, 2006), p. 7.

59

Friedman
, World is
Flat
, p. 10

Korossy,
27

“I am working with someone in India. I am buying from someone in China. I
am
selling to someone in England... Not only does my work have to fit into
somebody’s global supply chain, but I myself have to understand how

I need to
compete and have the skill sets required to work at a pace that fits the supply
chain. And I had better

be able to do that as well or better than anyone else in the
world.

60


That is, individuals
are
not only
more important than ever to the international system,
they

are more aware than ever

before

that they are so.

Moreover
, if an individual
understands hi
s own importance, he is more apt to understand the importance of other,
similar individuals, feeding the need for collaboration. Globalization of individuals
begets the globalization of individuals.


A more academic study of the globalization phenomenon yi
elds a similar analysis.
Warwick Murray’s
Geographies of Globalization

is an examination of precisely the
“world shrinking”

aspect
: how geography factors into globalization, and how
globalization is affecting the relevance and nature of geography.

He arriv
es at three
analytic paradigms: “time
-
space convergence,” which is the “decrease in the friction of
distance between places;” “time
-
space distanciation,” which is the “interpenetration of
people and places over increasingly large distances;” and “time
-
spac
e compression,”
which is the reduction of commercial “turnover time” that impedes trade.
61


The latter paradigm is the most complex of the three; it refers to the “annihilation
of space through time that lies as the core of capitalism
.

62

In other words, it
is the
increasing irrelevance of space and time for commercial relations. This phenomenon is
driven by capitalism,
63

and itself accounts for the other two: as time and space become



60

Friedman,
World is Flat
,
pp
. 276
-
277

61

Warwick E. Murray,
Geographies of Globalization
, Routledge Contemporary Human Geography, (New
York: Routledge, 2006), pp. 44
-
45.

62

Murray,
Geographies of Globalization
, p. 44

63

Murray,
Geographies of Glo
balization
, p. 45

Korossy,
28

irrelevant, even “annihilated,” it is a matter of course that time
-
space fri
ction would
decrease (convergence) and the ability to act across larger distances in shorter times
would increase (distanciation).
By extension, then, “capitalism is the driving force now
and in the past” of globalization on all fronts
.
64

Friedman’s own ana
lyses would be in
eminent agreement: the flatness of the world is a leveling of the playing field of
commercial competition, and the self
-
awareness of globalized individuals is an awareness
of their places in supply chains, markets, and among other individ
ual competitors. This is
the heart of capitalism.


If, then, globalization is driven by capitalism, then it is to remain a force in
international society as long as capitalism remains a force in international economics.

The future of capitalism is outside
the scope of this study
; it
has been the predominant
economic system since the late 18th century, and the
decisive outcome of its
monumental
clash with Communism in the 20th century

is

proof enough for t
he purposes of this study
that c
apitalism is here to
stay.

Rather, attention must be turned to what the consequences
of globalization might be.


Both analyses presented here, and a host of others, indicate an increased demand
for mobility. If an individual truly does recognize that he is “working with someon
e in
India... buying from someone in China... selling to someone in England,” he will most
likely desire, at some point, to make personal contact with these disparate individuals. An
understanding that one is competing with individuals globally implies tha
t all one’s
competitors can, in theory, physically move to any point that any other can. The
convergence of space
-
time and the distanciation of societies across space
-
time are both
the results of unprecedented mobility of individuals. It is no surprise, th
en, that airline



64

Murray,
Geographies of Globalization
, p. 349

Korossy,
29

operating costs per mile have fallen 60% between 1960 and 1990
;
65

airlines are the fastest
means available for individual transportation over long distances.


In the modern, converged, distanciat
ed world, capitalism leads to globalization,
and globalization implies the demands of individuals for fast and efficient transportation
that can take them
as
far as
the markets in which they act are flung.
The increasing
flatness of the world means that more and more individuals are
going to be makin
g these
demands. Long
-
distance transportation is the lynchpin of the new global economy.


B. The Security Structure
. The international security structure is the one that
best correlates with international political structures, for it rests upon threats to
and
assurances of security. Threats are a constant in the international climate,
66

arising as they
do simply from the minor frictions
that are intrinsic
67

to a pluralistic system of
states,
identity
groups, and non
-
state actors.

There are innumerable such fr
ictions which could,
potentially, explode into major violence; nonetheless, there are only a few which may,
based on history and current circumstances, do so at any time.


The security situation inherent
to

the modern world

has the various conflicts of
the

Middle East at its center. The Second Gulf War, now wrapping up but far from stable;
the Iranian nuclear program, threatening to spill over from diplomatic channels into
armed conflict; the ongoing Israeli
-
Palestinian tensions; and others are all prominen
t
features of the inte
rnational political situation.
All of these feed and are fed by general
anti
-
Israel and anti
-
American sentiment. None of this is new;
the Middle East has faced
conflicts with America and Israel since the inception of the latter state,

and the Pan
-
Am



65

Murray,
Geographies of Globalization
, p. 45

66

Perhaps there may be some disagreement (between realists and liberals) as to whether threats are
intrinsic

to international politics or not. Ei
ther way, they certainly currently are, and will be for the near
(foreseeable?) future.

67

These really
are
.

Korossy,
30

bombing of 1988 testifies to the Arab hatred of America and its symbols of global
supremacy even twenty years ago.

The Gulf War of 2003 was foreshadowed by the Gulf
War of 1991, the destruction of the World Trade Center in 2001 was preceded

by the
World Trade Center bombing of 1993.


The security situation today

is not far removed from the situation twenty or even
thirty years ago. While the circumstances and actors may have changed, the same
tensions remain and promise to explode into viole
nce. The future remains unpredictable,
but all eyes are still focused on the same region as they have been for the past several
decades.


C. The Financial
-
Oil Structure
. The international financial structure, which
correlates with the international economy
, is dominated by the importance of oil
. T
he oil
market
, in turn,

is dominated by the

scarcity

of the resource and the near
-
monopolization
of its sources by a relatively small cartel of producers. The Organization of the Petroleum
Exporting Countries (OPEC
) controls over a third of the global oil market, and as such
wields enormous power
over

its price and availability. OPEC itself comprises twelve
member states, of which seven are located in the Middle East and Northern Africa. With
the particular prioriti
es and ideologies of these states, they
have been known in the past to
raise oil prices or engage in trade embargoes to exert political pressure on their customer
states, and the price of oil is today is higher than it has ever been. The situation may
wors
en, however, for both the buyers and sellers if, as some are projecting, oil production
worldwide


the exploitation of a
limited,
non
-
renewable resource


is set to peak in t
he
near future and then begin an irreversible decline.

Korossy,
31


Certainly, the instabilit
y of the Middle East contributes to the cost of oil.
Nancy
Young, vice president of Environmental Affairs at the Air Transport Association, cites
the “terror premium” as partially responsible for the recent spike
:
68

as a Slate financial
analyst described,

prices [are] being pushed up by fear of terrorism and political
instability in major oil production centers

Nigeria, Venezuela, Russia, and particularly
Iraq and Saudi Arabia.”
69

Young goes on, however, to also include current market forces:
the phenomenon
of “direct trade into barrels, rather than companies,” which makes the
market that much more volatile.


Other analysts agree, primarily with the latter assessment. In a 2008 presentation
to the US Senate Committee on Energy and Natural Resources,
James Bur
khard,
managing director of
the Cambridge Energy Research Associates (CERA),

blamed
“speculative traders,” both individuals and firms,
who attempt to anticipate and exploit
price fluctuations.
70

Such trading, understandably, flourishes when there is a gener
al
observable upwards or downwards trend in the market that may yield exploitable
predictions. H
owever,

“in a sufficiently liquid market, the number and value of trades is
too large
for speculators to
unilaterally create and sustain such a trend
.

71

That is

to say,
direct barrel trading is certainly exacerbating
a

bad situation, but the original problem
must lie

elsewhere. Burkhard

offers a four
-
point outline:

“the fundamentals of demand



68

Nancy Young, “The Energy Challenge: Fuel Standards Regulations and the Environment,” presentation
at
Aviation’s New Flight Plan: Innovation, Adapt
ation, and Consolidation

hosted by U.S. Chamber of
Commerce, Washington, D.C., 04/03/2008.

69

Daniel Gross, “Oil Terror: Don’t blame Osama for high gas prices,”
Slate.com
, September 29, 2004, <

http://www.slate.com/id/2107454/
>, Accessed 04/15/08.

70

James B
urkhard,
The Price of Oil: A Reflection of the World
, <

http://www.cera.com/aspx/cda/public1/news/articles/newsArticleDetails.aspx?CID=9400
>, April 3, 2008
,
Accessed 04/14
/2008, p. 1.

71

Burkhard,
The Price of Oil
,
p. 2

Korossy,
32

and supply, geopolitical risks and rising industry costs
,


all alongsid
e
the declining
dollar.

72


The outline is best unpacked.
Demand for oil is greater than ever, due to the
increasing industrialization of the world. It is “strong economic growth
outside

the
United States

[
that has
]
supported growing oil demand;”
73

in partic
ular, “the expectation
of a strong oil price is a bet on the future of China and India.”
74

Supply
, for the moment,
is outstripped by demand. Security, likewise, is an ongoing concern.
Of great importance,

however, are the “rising industry costs,”

structural

costs of rapid expansion in an
infrastructure unprepared for any expansion. Burkhard laments:

As oil prices rose, so did demand for the people and equipment needed to find,
develop and produce oil. But nearly 20 years of low oil prices and industry
consol
idation meant “a missing generation”

a generation that skipped e
ntering
the petroleum industry.
As a result, major shortages of equipment and personnel
dramatically raised the cost of developing an oil field
.


The result is nothing less than a full “
doubli
ng of oil field c
osts over the last three
yea
rs.

75

The industry is facing what amounts to exacerbated growing pains, which ought
to sort themselves out over time.


The fourth item, however, is of equal importance. Burkhard points out an OPEC
-
American trade

imbalance: OPEC exports more than it imports, so “a weak dollar
damages terms of trade from OPEC’s perspective
.

76

As the US is one of OPEC’s largest
customers, this affects oil prices globally. On another level, however, the USD has long
been the world’s
strongest currency, a stable and reliable investment. This ceased as the
dollar crashed, leading many to see oil as “the ‘new gold’

a financial asset in which



72

Burkhard,
The Price of Oil
,
p. 2

73

Emphasis added.

74

Burkhard,
The Price of Oil
, p. 3

75

Burkhard,
The Price of Oil
, p. 2

76

Burkhard,
The Price of Oil
, p. 3

Korossy,
33

investors seek refuge as inflation rises and the dollar weakens.”
77

Oil, therefore, stands at
odds

with the dollar, and a solution to this standoff is not so forthcoming. Burkhard
concludes: “Oil prices are fluctuating in line with the latest economic signals

up and
down.... But one factor is clear. The price of oil will reflect major swings in the val
ue of
the dollar

both up and down.”
78

Many afflictions of the market are of an unexpected but
ultimately temporary nature. Time will resolve the new strains on the global petroleum
infrastructure. The behavior of the dollar, however, is not so predictable.
Economies
generally move in cycles, but it cannot be known at this time whether those cycles will
follow a generally upward

or downward trend. New superpowers are emerging


China,
India


and there can be no way to tell how their rise will impact the USD
and its placein
the global economy.


There is a second concern regarding the oil industry of a markedly different
nature.

Oil is a fossil fuel; it forms very slowly over a very large period of time. There is
a limited amount of it present within the earth’
s crust, which is currently being tapped.
Once this is exhausted, it will take millions upon millions of years to replenish the earth’s
supply. M. King Hubbert, a geologist active in the 1950s
-
1980s, was one of the first
scientists to examine this exhausti
on from an immediate and practical perspective, rather
than a distant and purely theoretical
curiosity. In 1956, he predicted that the US would
have reached the halfway point of its oil reserves in 1970, at which point production
would begin to slump. He w
as proven correct, and suddenly his ideas rose to national
prominence.
79




77

Burkhard,
The Price of Oil
, p. 3

78

Burkhard,
The Price of Oil
, p. 4

79

Kenneth S. Deffeyes,
Hubbert’s Peak: The Impending World Oil Sh
ortage
, (Princeton: Princeton
University Press, 2001), p. 1.

Korossy,
34


Hubbert predicted an oil “peak,” that production of oil from a particular store rises
until it is half
-
drained, at which point production falls at the same rate as it was
previously r
ising, for the same amount of time, until the well runs completely empty.
80

In
the 1990s, analysts began extrapolating Hubbert’s model to worldwide oil production,
arriving at the “peak oil” scenario: “Global oil production will probably reach a peak
someti
me during this decade. After the peak, the world’s production of crude oil will fall,
never to rise again.”
81

Something of a nightmare picture emerges, a world where demand
is growing but supply is inexorably dwindling, a world dependent on oil for energy,
manufacturing, most of the amenities of modern life.


Regardless of how wells operate, whether they follow Hubbert’s bell curves of
production or not, the fact is that the world’s supply of oil will, at some point, be entirely
used up. The apocalyptic aspe
ct of Hubbert’s theory was not that he expected there to be
an end

to oil
, or even that he expected there to be a crucial middle point, but that he
expected it to come so soon. His ideas were
lent credence

when he
forecast

the future of
America’
s output. H
is predictions, however, concerned a relatively small
and
inordinately modernized country. The US is wealthy and industrialized; it both
understands the need for oil and has the means of recovering it. There must be, indeed,
few areas of the world whose na
tural resources are better known and more thoroughly
analyzed than those of American soil. To apply Hubbert’s model to the global oil reserve
is to examine far larger swaths of land and massive bodies of water, which may, on the
whole, be significantly les
s understood and therefore less predictable.




80

Deffeyes,
Hubbert’s Peak
, p. 3

81

Deffeyes,
Hubbert’s Peak
, p. 1

Korossy,
35



Indeed, much conflicting data exists. CERA conducted a “field
-
by
-
field analysis
of global oil production”

and
found,

to the contrary of Hubbert’s peak,
that
“the world is
not running of oil in the near
-

or me
dium
-
term, and a large increase in the availability of
unconventional oils will expand global ... capacity by as much as one
-
fourth in the next
ten years.”
82

Senior Consultant Robert Esser testified before the US House Energy and
Air Quality Subcommittee th
at, based on this new analysis, “we see no evidence to
suggest a peak before 2020,” and moreover, “nor do we see a transparent and technically
sound analysis from another source that justifies belief in an imminent peak.”
83

Esser
explained that

a

previous

g
overnmentally
-
funded estimate that offered a significantly
more pessimistic result (and one in line with Hubbert’s and Deffeye’s predictions) was

based on now
-
outdated data
rules. I
f updated to
the standards defined by the Society of
Petroleum Engineers, t
hen even the previous study yields the same conclusions as the
new CERA analysis.


The debate is not resolved, but Peak Oil theorists give up valuable credibility on
two grounds. First, they overstep their responsibilities as scientists when they move
beyo
nd simply presenting their results and offer policy prescriptions. Deffeyes laments
on the first page of his book that “none of our political leaders seem to be paying
attention,”
84

even as he claims later that his intention is “to give the reader some expe
rtise
in evaluating the problems.”
85

In the second place, Peak Oil’s dramatic apocalypticism is
based on the unmovable certainty of the date of the peak, which is even now upon us.



82

Robert Esser,
Field
-
by
-
Field Analysis Indicates Over One
-
Third of Capacity from Non
-
Traditional iquids
in Ten Years
, <

http://w
ww.cera.com/aspx/cda/public1/news/pressReleases/pressReleaseDetails.aspx?CID=7776
>,
December 7, 2005, Accessed 04/14/08
, p. 1.

83

Esser,
Field
-
by
-
Field
, p. 1

84

Deffeyes,
Hubbert’s Peak
, p. 1

85

Deffeyes,
Hubbert’s Peak
, p. 11

Korossy,
36

Deffeyes claims that it will take “at least 10 years” to develop oil alterna
tives on such a
scale as to offer any relief from the oil crash; if the CERA report is to be believed, the
world now has that ten years and
more.


The world is facing an oil crisis, and prices


even adjusted for inflation


are
higher than they have ever
been in history. At best, this is a temporary bubble; at worst, it
is the harbinger of the end of an age; most likely, it is a period of increased prices that
will work themselves out at some point in the future, but as the dollar’s fluctuations
indicate,
not necessarily to the satisfaction of all parties involved. Demand and supply
will ultimately rebalance, but the world’s demand for energy is only on the rise. High oil
prices, regardless of what the future holds, will have an immediate effect on the
deve
lopment of new technologies to ease petroleum dependence.


D
.
The Knowledge
-
Technology Structure
. The international knowledge
structure correlates with the discovery, promulgation, and implementation of new
technologies. The creation of the first primitive

computers in the 1940s and the Internet
in 1992 ha
ve

led to
and unprecedented era of technological progress.

This is
,

today
,

matched by an unprecedented demand: a newfound large
-
scale environmental awareness
that sometimes borders on alarmism combined wit
h
staggering oil prices have

created
both and societal and market demand for more energy
-
efficient or less oil
-
based fuels,
engines, and generators.


Unfortunately, technology is largely unpredictable. If breakthroughs could be
scheduled, they would hardly

be breakthroughs at all. Even so, certain trends in
technology are more prevalent than others, and the flow of money to one project or
another may be useful in guessing which one will succeed. I
ndeed, money is invested in
Korossy,
37

such projects for the
hope

of
a r
eturn in the form of success, and that the money spent
will ultimately be less than what would be spent, in the long run, without new
technology.

In the long run, exorbitant amounts will be spent by every sector of society
on purchasing oil, now at over $1
00/barrel.
It

is no surprise
that means of reducing oil
consumption are now at the forefront of not only the public’s eye, but also business and
scientists.


If oil prices drive clean energy development, there is the distinct possibility that
normalization

of prices will end demand for petroleum alternatives. A similar situation
occurred when oil hit then
-
record prices in the 1970s, normalized in the 1980s, and
green
technology proved to be a demand
-
driven fad only.
86

The world would be no better off at
the
conclusion of the present crisis than it was before, would be just as unready for
another crash, and indeed, would have wasted valuable time before Peak Oil or a similar
catastrophe
does
occur, in the near or far future


even CERA’s own
relatively
optimis
tic
reports do not attempt to look beyond 2020.


CERA, remembering the fickleness of the 1970s’ market’s environmentalism,

argues that it will not happen again. A 2008 report s
tates, “t
he focus today on clean
energy is not a bubble or passing phenomenon,”
but that “unconventional clean energy is
now poised to cross the divide and move from the fringes of the energy sector”


where it
would be relegated to serving whims motivated by short
-
sighted financial considerations
alone


“to the mainstream.”
87

It is,
in fact, not the technology but rather the mainstream
itself that has undergone the most radical changes since the 1970s: “what makes today
different from the 1970s is growing apprehension about global warming as a threat to



86

Clifford Krauss, “Study Sugges
ts That, Unlike in the ‘70s, Energy Lessons Will Last,”
The New York
Times
, February 5, 2008.

87

CERA report,
Crossing the Divide:

The Future of Clean Energy
, quoted in Krauss, “Study Suggests.”

Korossy,
38

political security and the envi
ronment.”

And it is exactly such public apprehension that
pushes “governments to demand, and subsidize, greater use of alternative energy.”
88

That
is, the market is not in need of long
-
term solutions, but electorates demand it, so
governments will ensure th
at the 1970s are not repeated. CERA estimates that by 2030,
“rising private and public investment in clean energy ... could surpass $7 trillion.” With
$125 billion having been invested in 2007,
89

that represent
s a 150% total increase in
annual spending.


Th
e question then turns to what those technologies will be, insofar as they might
be predictable.
T
he Wall Street Journal reports,

90


p
erhaps

nowhere is the great boom in
clean energy and renew
ables as visible as in biofuels,


which is to say, ethanol and
bi
odiesel. And, indeed, “governmental support in the United States, Europe, Brazil, and
elsewhere has been the single most important reason for the rise in biofuel use over the
past several years.” And, indeed, it has a broad backing that “spans the ideologi
cal
spectrum” for reasons as diverse as increasing rural commerce, decreasing foreign oil
dependency (“energy security”), and, not least, environmental considerations. There are,
of course, hurdles to be faced, including the appropriation of farmland and
still
substandard product quality, but it is expected that technological advances may overcome
these: “The industry needs better
molecules, better feedstocks and better conversion
technologies.”


It may be possible to predict what technological sectors are

going to produce
results in the near future, by examining where money is flowing. Individual discoveries,



88

Krauss, “Study Suggests,” paraphrasing the CERA report.

89

Kr
auss, “Study Suggests”

90

Aaron Brady, “Biofuels: Today’s Realities, Tomorrow’s Promise,”
The Wall Street Journal
, February 13,
2008.

Korossy,
39

however, are much more difficult to predict. The technologies that will lead biofuels and
other clean energy sources forward are all in the works, bu
t timetables are an
impossibility. There is the expectation, not without merit, that the future will see much
decreased reliance on petroleum, but the details, especially the timing, are far too hazy to
be useful to policymakers today.


V. The

Behavior of

the Airline Industry


Earlier, it was claimed that

the commercial aviation industry is
influenced by a
number of factors that fall under the umbrellas of four internationally
-
rooted

“structures,”
and that by observing and analyzing other paradigms and eve
nts occurring under those
same structures, the current behavior of
major airlines
may be explained, and certain
predictions can be made about its near future.

The industry is in a greater state of
upheaval than it has experienced since deregulation, thirty

years ago, with an
extraordinary number