- The Washington Times - Tuesday, April 11, 2006

Rising fuel prices continue to make it difficult for airlines to become profitable and will continue to hinder the industry, an airline industry group said yesterday.

The average price of jet fuel rose 28 percent in the first quarter, from $1.45 a gallon to $1.85, and eclipsed $2 a gallon briefly last week.

“I don’t think this wipes out everyone’s chances” of turning a profit this year. “But it certainly puts a damper on the outlook,” said John Heimlich, chief economist for the Air Transport Association, which represents major commercial carriers.

U.S. airlines have lost a combined $40 billion over five years. The International Air Transport Association said last month that it expects airlines globally to lose $2.2 billion this year.

The industry spent $33.1 billion for fuel last year, up $10.4 billion from the $22.7 billion airlines spent for fuel in 2004. Airlines use about 19.5 billion gallons of fuel annually.

Nearly all airlines are buying fuel on contract to lock in prices, or hedging, to reduce costs.

Southwest Airlines has given itself the most protection from rising fuel prices through hedging for the past several years. The airline, based in Dallas, has hedged 70 percent of the fuel it will use this year at $36 a barrel.

The price of benchmark crude averaged $63.27 in the first quarter.

“I think part of it was Southwest guessing right and part of it was a philosophy of insurance,” Mr. Heimlich said.

Despite its hedging position, Southwest expects fuel costs to increase $600 million this year, airline spokeswoman Beth Harbin said.

American Airlines has hedged 16 percent of its fuel consumption for the year at $60 a barrel.

“We’re hedging when we can,” American Airlines spokesman Tim Wagner said.

United Airlines and Northwest Airlines are the only two carriers with no fuel hedged for the year.

Airlines are raising ticket prices to offset higher fuel costs and to take advantage of rampant demand by passengers.

Southwest last month increased one-way fares by $10.

“With fuel costs the way they are, we had no choice,” Ms. Harbin said.

American Airlines last week raised most walk-up fares for first-class and coach seats by $50 each way.

Delta Air Lines raised some fares last week by $50. Northwest Airlines responded by raising fares by $50 on routes where it competes with Delta. On some other routes, Delta raised fares by $30.

United Airlines raised business fares last month by $50 each way to offset the high cost of jet fuel.

Business fares are 15 percent higher than a year ago, airline industry analyst Bob Harrell said.

“It’s possible there will be more increases, but I’m not sure what you do after you raise fares by $50. That’s the biggest increase in probably 10 years,” Mr. Harrell said.

Rising fuel prices underscore the need for modernizing the nation’s air traffic control system to reduce fuel consumption, Mr. Heimlich said. The Federal Aviation Administration hopes to replace the nation’s ground-based air traffic control system with a satellite-based network.

“We need the ability to fly the shortest distance between two points,” Mr. Heimlich said.

Airlines have tried to improve fuel efficiency by shedding weight, he said. Some carriers have removed ovens and trash compactors while others are carrying less water or less paper. Southwest and American have added winglets — the end of a wing that is turned upward — to reduce drag.

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