U.S. airlines push fuel surcharge increase
US Airways forecasts $2B in extra fuel costs this year.
By Dave Hannon -- Purchasing, 6/12/2008 10:43:00 AM
U.S. airlines continue to push more fare hikes and surcharges as they struggle with record-high fuel costs. But there are signs that travel buyers have had enough.
American Airlines on Wednesday pushed a fuel surcharge increase of $20 for a total surcharge of $150 on most domestic round-trip flights and according to some reports United and Continental have jumped on the bandwagon. Airlines are prohibited from collectively setting rate hikes, so typically market competition dictates if a fare hike sticks.
The latest push comes after an attempt to boost rates over the weekend failed to hold. A number of major airlines, including American and Delta Air Lines, rolled back a weekend fare increase Monday, the first time in more than half a dozen attempts that a widespread price hike failed to take hold across the struggling industry.
“This could be the first sign that demand is softening,” said Graeme Wallace of airfare research site FareCompare.com in an Associated Press report. “Until now, the (airlines') statements have been that they expect demand to stay high.”
According to the latest data from the Energy Information Administration, kerosene-type jet fuel costs $3.86-$4.02/gallon on average depending on region. US Airways CEO Doug Parker told a shareholder meeting Wednesday that fuel costs per passenger have doubled since 2007 and US Airways will pay nearly $2 billion more in fuel in 2008. Parker also predicted that the U.S. airline industry will reduce its capacity by 9% this year and another 9% next year.
“In some way the airlines don't really have a choice,” Wallace told the Pioneer Press. “They either have to increase airfares, charge more fees or reduce capacity. They're pretty much doing all three at the moment.”
The International Air Transport Association (IATA), which had predicted an industry profit of $4.5 billion this year, now is projecting a loss of $2.3 billion. The IATA, which represents more than 200 carriers that account for 94% of global traffic, says that every one dollar rise in oil prices will increase airline operating costs by $1.6 billion annually. Airlines already expected to pay about $176 billion on fuel expenses this year based on oil prices of $106.50/barrel, says the IATA, adding that fuel accounts for 34% of operating costs.
The Associated Press reports that in a research note Calyon analyst Ray Neidl said the airline industry is in a tougher financial crisis than it was immediately after the Sept. 11, 2001 terrorist attacks.
“Airlines will have to take drastic actions to meet this challenge and politicians have to decide if the industry is a business or a public utility that has to be subsidized,” Neidl said. “The choices will be difficult since it will mean less service, higher prices and lost jobs.”
In the mean time, airlines continue to investigate alternative ways of reducing fuel expenditures. United Airlines this week said it was investing in a new engine wash system from Global Service Partners, a unit of Pratt & Whitney, which it expected would save 3 million gallons of jet fuel annually, while reducing carbon dioxide emissions by approximately 28,000 metric tons.
See also: Airlines increase surcharges, cut the perks
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