Fuel Costs And Fares

The Dissident

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Dec 21, 2002
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US airlines scrap airfare increase
By Amy Yee in New York
Published: March 30 2004 19:41 | Last Updated: March 30 2004 19:41


The US airline industry's efforts to pass high fuel costs on to passengers have faltered again as American Airlines and Continental joined United and US Airways in scrapping an airfare increase initiated just days ago.


The U-turn reflects the major carriers' disarray, as they find themselves caught between record fuel prices and the growing threat of low-cost operators.

Continental last Friday announced a $5 increase for domestic tickets, bringing its fuel surcharge to $15. United, American and Northwest followed with similar announcements later in the day.

But American and Continental on Tuesday said they would join United, US Airways and Northwest in rolling back the fare increases to stay competitive with rivals, particularly low-fare carriers that had not changed their prices.

David Stempler, president of the Air Travelers Association said: "If an increase is attempted and there is not unanimity among carriers, at least with those in the same class, then it just won't stick. It's an all or nothing approach.

"We're starting to see gasoline prices going up at the gas pump so passengers shouldn't be surprised by a fuel increase. But it's a difficult environment for airlines to get fare increases when people are driven by low prices.?

The reversal came as little surprise to analysts. Ray Neidl, of Blaylock & Partners, said airlines "desperately need to pass additional fuel costs on to consumers. They keep trying and this won't be the last time."

The airline industry is staggering beneath the weight of soaring fuel costs. Continental said its fuel expense last year reached more than $1.2bn. It added that the price of crude oil had jumped 85 per cent from its $20 per barrel price two years ago to more than $37 this month.

Hopes for a gradual recovery for the major US carriers have been dashed by high fuel costs, the second-largest expense for airlines after payroll. Airline analysts, who had predicted some relief for the industry, have slashed their forecasts for the year.

Major carriers are squeezed particularly hard as fierce competition from low-fare carriers prevents them from raising fares. Several low-fare airlines are protected from high fuel costs because of significant hedge positions on oil.