Airfares Poised To Rise As All Eyes On Oil

Published airfares are poised to rise again this week, following widespread devastation caused by Hurricane Katrina, according to industry analysts. At the same time, crude oil prices this morning moved lower after a widely reported decision by the U.S. Department of Energy to tap the Strategic Petroleum Reserve. Details from DOE are expected later today.

Meanwhile, Delta Air Lines today confirmed that it had changed minimum-stay requirements in certain markets to and from Atlanta. The new two-night requirement "if matched by others in the industry, would add $500 million to revenues annually," wrote Helane Becker, analyst with The Benchmark Co., in a report released today.

Also, J.P. Morgan Securities analyst Jamie Baker today said "most leisure fares jumped another $5 one-way in the past several days, following AMR's lead from last week."

Cheapseats airfare expert Terry Trippler told BTN that while he had not observed any across-the-board fare hikes this week, limited price increases were filed by both American and United.

"I am expecting a big one this weekend," he said, referring to a fresh airfare hike as high as $25 each way. "These $5 and $10 increases won't cut it. That is like putting a Band-Aid on a severed artery."

Meanwhile, a barrel of crude oil on the New York Mercantile Exchange this week continues to trade between $68 and $70, a price deemed unsustainable for the airline industry. At press time, crude prices were down roughly 50 cents, in anticipation of an official DOE announcement.

"As we experienced with Hurricane Ivan in 2004, the Strategic Petroleum Reserve can be used to lend petroleum to refineries if they experience shortages and are therefore unable to maintain their production," said Energy Secretary Samuel Bodman in a statement on Monday. "Over the next few days, we will continue to gain more information on the specific needs and then be able to make a better determination on how we can help."

Damage assessments for Gulf of Mexico oil production are not yet known and it remains to be seen how much of a longer-term impact DOE's decision will have on the overall market and specific airlines like Delta trying to avoid bankruptcy.

James May, president and CEO of the Air Transport Association, yesterday said the trade group endorsed any proposal to release oil reserves into the market and help ease price pressure. "A release from the SPR, however, is just a first step," he added. "It is now critical that the government act aggressively to provide much-needed assistance to restore refinery capacity damaged by Katrina, particularly since capacity was already extremely tight prior to the storm."

Meanwhile, Louis Armstrong International Airport in New Orleans remained closed, with no timetable for resumption of operations. Flight schedules are being pieced back together at most other airports affected by the storm.

"Post-Katrina, most carriers are suggesting cancellation activity still is within budget for the quarter, suggesting the impact on operations has generated more headlines than anything else," said J.P. Morgan's Baker. "Regrettably, the same cannot be said of Katrina's impact on energy prices."