Hamish McRae: No-frills democracy: cheap flights help the poor

There is a magnificent braggadocio about Ryanair's Michael O'Leary, is there not?

All the other airlines are making dire warnings of losses, pondering about charging for meals and bags, cutting routes, adding to their fuel surcharges and so on. Then along comes Mr O'Leary, who unveils only a 10 per cent fall in Ryanair profits but also commits the airline to carry on with its ultra-low fares despite soaring fuel and other costs. Even with oil at $130 (£66) a barrel the airline would, he claims, break even. It is just the sort of "in yer face" reaction we have come to expect from him.

As all of us who use it know, the great thing about Ryanair is you get what you pay for and no more. There is no class structure, no snobbery, none of the pretence that you are a valued member of a club. They get you there, on a modern aircraft and usually on time, and that is it. But there is something else.

Ryanair, as leader of the pack of budget airlines, has been a huge force for the opening up of Europe. The budget airline phenomenon is profoundly democratic for two reasons. Obviously people who could not afford to fly can now do so. More than this, regions and even countries that suffer disadvantages because of their location are now better able to compete with other luckier places. That is why small little-known airports are so eager to get the airlines to open services. Suddenly, they are on the map.

Or at least that is what has happened up to now. But the rise in fuel prices, coupled with wider environmental concerns, has inevitably cast a long shadow over the aviation industry. There have been individual casualties, most recently the business class-only Silverjet, and there may well be more in the months ahead. But what happens to the weaker carriers is almost a side issue to the bigger one as to whether cheap, or at least cheapish, air travel will itself survive. If it does not, this will have profound economic consequences.

The biggest one is that core locations, essentially large cities close to other large cities, will tend to prosper at the expense of the fringe. Air transport is a business input as well as a consumer good. In UK terms the end of cheap air travel would be bad for business in Scotland and good for business in the South East. In French terms it would be good for Paris and bad for the Dordogne.

This raises a further issue: to what extent can the world substitute physical communication with electronic communication? The most extreme example of a city that has built global leadership on the latter is Bangalore. It is about 300 miles from the sea in any direction and it has until this month operated with only a tiny airport – a new one has just opened. So it could not export anything that had to be transported by sea or air.

It was however a hub for high-tech defence industries and had a very well educated workforce and it was also, thanks to being 3,000 feet above sea-level, a relatively cool and pleasant place to live. As a result it built up its export business, selling services that did not need to be physically transported, such as software.

I happen to be a huge admirer of Bangalore, as much for the way it has coped with its limitations of infrastructure as anything else – I was there three weeks ago and was thrilled to catch a glimpse of one of India's great success stories. But there are two problems with the Bangalore model that limit its application elsewhere. One is that, while some places can indeed specialise in virtual products, others still have to produce the physical output. The other is that even Bangalore needs to move goods and people too: passengers through its airport were rising at more than 20 per cent a year.

That leads to biggest issue of all facing air transport. Despite the work of Ryanair and the other budget airlines in Europe, and despite the growth of Southwest Airlines (the US pioneer of the genre) the main growth of global air travel in the world is not in Europe or North America. It is in Asia. India has benefited hugely from deregulation, with a string of private sector carriers, with pretty low fares and excellent service, opening up the entire country. In China they are building 97 new regional airports in the next 12 years. Air travel is rising by about 25 per cent a year compound.

At some stage that growth will tail off; it has to. But meanwhile it is seen, I think correctly, as an engine of economic development, opening up parts of the country that have lagged in economic terms. It is, so to speak, a way of trying to level the economic playing field in what is still a desperately uneven giant.

So Michael O'Leary may be throwing down a gauntlet to the other European carriers. If some of them fold, so be it. Ryanair will pick up their business. But the question his action raises – what is the future of cheap air travel? – actually matters much more for Asia than it does for Europe.

We can stumble along with somewhat more expensive travel. It will be bad news for Europe's fringe regions but they will have to adapt. But for Asia, and most particularly for those two giants now seeking to lift the standard of living of their people, cheap air travel is a key driver of their economic progress. They will be hobbled without it.

So is he right? In European commercial terms I don't know. I suspect there is a lot of caution behind the bragging and that Ryanair will be very tough-minded in cutting back its schedules if demand falters or if costs continue to rise.

But in Asian terms, and that is where it matters, I am fairly sure he is right. Airlines there will cope with higher fuel charges in a variety of ways, including upgrading their fleets to the most modern (and hence efficient) aircraft. And they will manage to make air travel steadily more affordable relative to wages. Asia's love affair with jet travel has hardly begun.

If this is right there will be consequences for all of us. Most obviously, demand for aviation fuel will remain high, as will demand for all oil products. The world is close to a tipping point, where overall demand for oil from the emerging countries will exceed that from the developed world.

We will probably go through that point in this downswing of the economic cycle. That in turn will make the world reserve oil for the applications where there are no obvious substitutes, one of which is air travel. It will be too valuable to burn in power stations; we will need it for planes.

Many people in Europe may find this an uncomfortable thought. More and more of us now offset the carbon emitted when we travel, a token of that discomfort. But cheap air travel has been one of the fruits of economic growth that the "old" rich world has enjoyed and it would be hypocritical of us not to admit that the "new" rich world would rather follow our example. It is a democratising force for Asia as well as for Europe and North America.

Interesting? Click here to explore further