Thursday, December 10, 2015

Airlines' fuel bill to drop 25% in 2016; Productivity slump as a harbinger of better times; South Africans resigned to live and let bribe

1 Airlines’ fuel bill to drop 25% in 2016 (Shweta Jain in Gulf News) With oil prices continuing their slide, the global airlines industry will see fuel bill drop to $135 billion next year, representing 20.6 per cent of their total operating costs. This is a 25 per cent drop compared to the $180 billion fuel bill the carriers had to bear in 2015 (comprising 27.4 per cent of operating costs), and a whopping $226 per cent in 2014 (comprising 31.6 per cent of operating costs), according to IATA (International Air Transport Association).

Low oil prices resulting in strong air travel will be key drivers of growth for airlines next year, according to Brian Pearce, IATA’s Chief Economist. “Jet fuel prices have fallen substantially and we base our forecast on an average price of $63.8 a barrel next year, and $51 per barrel for the Brent crude oil prices.

The future price of oil is highly uncertain, with some forecasters expecting $20 per barrel in 2016 while others expect a rise to $60 per barrel. According to the aviation trade body estimates, stronger economic performance in some key economies (including a faster than expected recovery in the Eurozone) is outweighing the overall impact of slower growth in China and the downturn in the Brazilian economy.

And the global GDP (gross domestic product) growth, which is expected to improve to 2.7 per cent in 2016, up from 2.5 per cent for 2015, is only expected to make the prospects brighter. With 3.8 billion passengers expected to travel in 2016, the demand for passenger travel is expected to grow by 6.9 per cent (similar to the estimated 6.7 per cent growth for 2015).

The airlines are likely to end 2015 with record high load factors of 80.6 per cent, tapering slightly to 80.4 per cent in 2016, indicating efficiency gains. Capacity, which is increasing, is expected to move ahead of demand growth in 2016, while yields, meanwhile, continue to deteriorate amid stiff competition, according to IATA.

2 Productivity slump as a harbinger of better times (Barry Eichengreen in The Guardian) Recent trends in productivity growth make it hard to be optimistic about the future. In 2014, the global growth of total factor productivity, or TFP, which measures the combined productivity of capital and labour, was essentially zero for the third consecutive year.

This was down from 1% in 1996-2006 and 0.5% in the crisis years of 2007-12. And, by every indication, 2015 has been no less dismal. If the underlying rate of TFP growth has fallen from its historical norm of 1.5% a year to near zero in countries such as the US, then the living standards of today’s young adults will rise much more slowly than those of their parents. Any increase will depend on improvements in education and training, which are absent from the data, and from investment in equipment and structures, which is depressed relative to historical levels.

Economists such as Robert Gordon of Northwestern University argue that this slump in productivity growth reflects the stagnation of technology. He argues that all of the epochal advances, from running water and electricity to the internal combustion and jet engines, have been made. The positive effect of instant messaging and video gaming on productivity and living standards pales in comparison.

This conclusion will strike many people – especially those of us who live on the fringes of Silicon Valley – as implausible. We see radical technological advances in robotics, artificial intelligence, biotechnology, and materials design going on all around us. One view is that it takes time for the productivity-enhancing effects of new technologies to show.

Indeed, when radical innovations are rolled out, their immediate effect is to reduce, not raise, productivity. Electricity, the new technology studied by Paul David, economics historian at Stanford University, is a case in point. Defore electric motors were installed in factories, machines were arranged around centralised steam engines, to which they were connected by belts and pulleys. Self-standing electrical motors meant machines, the workers operating them, and their activities all had to be reorganised in more efficient ways.

But this reorganisation took time. Meanwhile, established modes of production were “disrupted”, in 21st-century business school parlance, causing productivity to fall. But this slump in productivity was a harbinger of better times.

3 South Africans resigned to live and let bribe (Katherine Child in Johannesburg Times) South Africans believe that to get through the day you'll have to pay a bribe. And the results of a survey indicate that 10% of people believe bribery should be legalised.

"If we think everybody is doing it [paying bribes] it becomes easier for people to justify it to themselves," says the report, authored by The Ethics Institute. "The perception that bribery is part of life is a manifestation of the South African culture of impunity," said Paul Hoffman, director of the Institute for Accountability. "If this endemic corruption continues South Africa will become a failed state."

Some bribes reported included "paying to get away with a murder case or to avoid arrest for selling drugs". The most common bribes were paid to avoid paying traffic fines. Unskilled people felt they were "expected" to pay bribes to get sought-after employment. One said "It is a matter of life or death for uneducated people". This illustrated how vulnerable, unskilled people were exploited, said the institute.

People can be tempted into corruption by the perception that corruption is endemic in their society and by the belief that they are unlikely to be caught. The pervasiveness of bribery in South Africa allowed people to justify it easily.

The survey results were released a week after a Transparency International survey revealed that at least 83% of South Africans believed corruption had increased in the past year. In that survey, 7% of the respondents said they had paid a bribe. The Ethics Institute survey arrived at a figure of 25%.

Tellingly, in South Africa - rocked by a number of corruption scandals, including the spending of R246-million of public money on President Jacob Zuma's private home in Nkandla - 79% of the Transparency International respondents said the government is doing poorly in fighting corruption.

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