AA, CO Up Fares On Fuel Fears
Continental Airlines today increased by $10 each way all published fares systemwide to offset rising fuel costs. The carrier cited today's crude oil price in excess of $36 per barrel, calling it "the highest since October 6, 2000." American Airlines reportedly matched.
Fuel prices have been rising for months as sociopolitical strife continues in Venezuela, abnormally cold weather persists throughout the United States and the world gears up for an increasingly likely Middle East conflict.
"Although the airline industry is suffering from overcapacity and weak demand, this fare increase is necessary to get Continental back on the path to financial recovery," the airline said in a statement.
Yesterday, Air Transport Association president and CEO James May suggested to the Senate Committee on Energy and Natural Resources that the government repeal the 4.3 cents per gallon jet fuel tax that he said costs the industry $600 million annually, as well as release crude oil from strategic petroleum reserves.
"In the first 11 months of 2002, our fuel prices increased by 27 percent. Even more alarmingly, since the beginning of December, this rate of increase has grown to 55 percent," May said. "The current fuel price increase is taking place against a backdrop of economic chaos in the airline industry. There is no cash cushion, no borrowing capacity and no apparent relief in sight."
May went on to note the link between the economy and air travel. "Three of the major recessions of the past 30 years can, in large measure, be attributed to the steep increases in fuel prices that accompanied the 1973 Middle East oil embargo, the 1980 Iran Crisis and the 1990-91 Gulf War," he explained. "The airline industry is inextricably tied to the overall economy--even minor recessions result in reduced demand and increased sensitivity to prices for leisure as well as business travelers."
Though some carriers have hedged fuel needs for the coming months, others have not. This has led some analysts to predict additional airline failures should fuel prices remain at such inflated levels.
A few years ago, major U.S. carriers levied passenger and cargo fuel surcharges to offset rising fuel costs. However, that strategy, specifically on the passenger business, has not been applied on a widespread basis since late 2000.
American's match comes just days after CEO Don Carty, in a message to employees earlier this week, said, "Oil prices have spiked, yet we cannot even sustain a fuel surcharge, so it's unrealistic to assume that price increases will provide any kind of short-term financial relief."