Air Transport World

'Oil prices are not the problem': US airlines have been hammered by extremely high energy prices, but is the cost of fuel really at the heart of the matter?(Fuel Crisis)

In early October, the price of oil topped $52 a barrel, representing a 60% increase over the year-ago period. According to the Air Transport Assn., every $1 increase in the price of a barrel adds $425 million in annual operating expenses for US airlines. That means they are spending an extra $9.93 billion on Jet A this year compared to 2003.

Until oil began its climb to the stratosphere, 2004 was expected to be a breakeven-or-better year for US carriers, who hoped to reap the reward from more than $20 billion in cost cuts--painfully achieved--since 9/11. Instead, they are expected to report more than $4 billion in losses. In late September, ATA President and CEO James May put the figure at in excess of $6 billion. By contrast, airlines based outside the US--companies such as Air France/KLM, Qantas, Air New Zealand, Singapore Airlines, All Nippon Airways, British Airways, easyJet, Gol and LanChile--have remained profitable despite operating within a similar fuel environment.

The fact that US airlines are being affected disproportionately provides ammunition for those who argue that more significant factors are at work. "Oil prices are not the problem," former American Airlines Chairman and CEO Robert Crandall asserted in a speech to the Wings Club of New York in September, adding, "In constant dollar terms, fuel prices have been higher in the past than they are today." As usual Crandall was correct. In 2004 dollars, West Texas Intermediate reached $66 a barrel in 1982 and did not fall below the $50 mark (on an average annual basis) until 1985. Interestingly, US airlines actually netted nearly $600 million (in nominal dollars) over those four years as $1. …

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