Oil Prices and Aircraft Sales

One thing that has always fascinated me about economics is how interconnected the demand for one product is with changes in various market conditions - something I discuss in How Markets Use Information To Set Prices.

There are thousands of different ways that higher gas prices impact other goods and services in our economy and ultimately reduce fossil fuel consumption. Today's Times discusses the relationship between high oil prices and aircraft sales:

More than $100 billion (£50.2 billion) of aircraft orders could be cancelled or postponed in the next couple of years as the high price of fuel drives airlines into bankruptcy or forces them to cut spending.

Analysts estimate that 20 to 30 per cent of the $530 billion order backlog held by Boeing and Airbus, the aircraft manufacturers, could be cancelled or delayed as the aviation industry heads towards a winter of turmoil. These cancellations would have a significant impact on aerospace suppliers such as Rolls-Royce, the engine maker.

The interesting thing (to me) is that it is not obvious that the cross-elasticity between the two is such that high oil prices would reduce the demand for new aircraft. I can imagine the scenario where higher oil prices increase the demand for aircraft as firms phase out their older models for newer, more fuel-efficient ones.