United Matches AA Fuel Surcharge Increase

United Airlines today confirmed it followed rival American Airlines in increasing the passenger fuel surcharge by $3 for all one-way tickets and $6 for roundtrip travel in the United States and between U.S. and Canadian destinations. American, which made the move yesterday, cited mounting fuel expenses. Both carriers now levy a total of $26 in fuel surcharges per roundtrip ticket.

American said the average spot price for a gallon of jet fuel has shot up 19 percent in two months, to 99 cents, and that each one-cent increase adds $30 million to its annual fuel tab. The carrier attempted to push through a fuel surcharge increase last month, but reversed its decision when no competitors matched. "Since that time, fuel prices have continued to escalate," American said.

Airfare expert Terry Trippler of Trippler & Associates said American again will have to rescind the increase absent a competitive match. "If others don't go along, they just can't stick with it," he said, "because if the total price of their fares comes up higher, it pushes them down two or three pages on the fare displays of online sites, for example."

Trippler also suggested American made the move to subsidize its battle against JetBlue Airways. "You have to wonder about the rationale of making a big splash and giving away the store in terms of their recent promotions in markets versus JetBlue and then turning around and putting in a higher fuel surcharge," he said. "These fuel surcharges have become a joke because, for example, they haven't always been applied to all fares. If American wants to raise their fares, they should just raise them instead of hiding behind the fuel surcharge idea."

Airlines, many of which are in poor fuel hedge positions for the current quarter and remainder of the year, are vulnerable to increasing fuel prices. Industry analysts this week said much of the benefit of recently improving revenue trends is being offset by persistently high fuel costs.

UBS analyst Sam Buttrick, for example, increased his forecast for 2004 industry operating losses from $200 million to $575 million, "primarily as a result of higher first-quarter oil prices." Buttrick noted that "Southwest appears to have the best hedge position for 2004, while Northwest is currently unhedged."