Well said, Jim. A few points.
The real issue is not if ALL airlines have to pay higher prices for oil or grocery stores for green beans; the problem arises when some have an "unfair advantage" such as what WN had for the first half of this decade with hedges that kept their price at a fraction of what the network carriers paid. That advantage allowed WN to aggressively move into new markets like PHL and DEN and take share from other carriers. WN's fuel prices are now closer to the rest of the industry so fuel is not the advantage for any carrier it once was.
But fuel is not the only issue... a recent article (I think USAToday) ranked the least efficient US airlines and DL was just below AA. Of couse DL is parking DC9s and AA is replacing M80s but there is still a large difference between total costs at DL and AA despite very similar fuel costs both per gallon and per ASM. The discussion gets uncomfortable for a lot of people when it becomes apparent that there isn't any manipulation of the numbers but there are vastly different cost structures between DL and CO - which have pretty similar overall costs - and AA.
Maintaining premium revenue is key to helping offset higher costs and that traditionally has been how network carriers have offset their higher costs. But as low fare carriers have flourished and network airlines have "invaded" each other's core markets, revenue premiums diminish.
The clear key for network airlines is to continue seek new revenue sources (ie expansion of flying to new regions/cities) as well as keep costs down. The best way network airlines keep costs down is by growing since there is a natural increase in costs as employees move up the seniority scale. A big part of CO's success in the 1990s and 2000s was because they rapidly grew which meant they were starting a lot of new routes with incrementally less expensive employees (in aggregate for the entire company's costs). Not surprisingly as CO's growth as slowed, their costs have gone up relative to other network carriers. But CO was able to grow rapidly in the 1990s because they had low costs and found revenue premiums - largely developing EWR as a large global hub for NYC.
There are a lot of us that would be tickled pink to see AA return to a high growth mode which will help keep costs down and allow them to further grow their network - which will be significantly challenged by the combined UA/CO and DL.... but AA must have competitive costs in order to be able to grow.
