- The Washington Times - Thursday, June 3, 2004

Airline executives told Congress yesterday that high fuel costs are impeding an industrywide recovery and carriers cannot pay an additional $435 million in security-related fees sought by the Bush administration.

The lawmakers said the federal government is unlikely to support another bailout of the industry, although it would extend war-risk insurance.

The federal government provided about $18 billion in cash, security-fee reimbursements and loan guarantees to airlines after the September 11 attacks. Nevertheless, airlines have lost nearly $25 billion since the start of 2001.

“While Congress may assist the airlines with mandated security costs and war-risk insurance, let me make it clear that Congress is not going to underwrite losing airline operations,” Rep. John L. Mica, chairman of the House Transportation and Infrastructure subcommittee on aviation, told the executives.

“The airlines now in trouble must be prepared to fend for themselves,” said Mr. Mica, a Florida Republican.

He mentioned low-fare airlines as examples of efficient business operations that have withstood industry turmoil.

Joseph B. Leonard, chief executive of AirTran Airways, urged the government to end the federal loans and other support that have allowed some of its competitors to continue operating.

“What the government is currently doing is subsidizing inefficiency,” Mr. Leonard said. AirTran is one of the nation’s most successful low-fare airlines.

A better option is to allow struggling airlines to “simply fail,” Mr. Leonard said.

Low-fare airlines keep expenses down by flying smaller aircraft and changing schedules often to match demand for services. Examples include Southwest Airlines and JetBlue Airways.

Large airlines, or network carriers, tend to concentrate their flights around peak flying times on routes between major cities. Some also pay as much as 40 percent more in labor costs because of union contracts.

Low-fare airlines have remained profitable while network carriers are stumbling toward bankruptcy because “we’re doing precisely what the government and consumers want us to do,” Mr. Leonard said.

Executives from the network carriers said fuel and government-mandate costs they cannot control are hurting their business.

Jet fuel prices, which are about 16 percent of airline costs, reached $48.65 a barrel on May 17, the highest since Iraq invaded Kuwait in 1990. The International Air Transport Association estimates a $1 per barrel rise in jet-fuel prices costs the airline industry $1 billion per year.

United Airlines, the nation’s second-largest airline, is operating under court-supervised bankruptcy protection. United’s parent company, UAL Corp., is seeking a $1.6 billion loan guarantee from the government.

Arlington-based US Airways, which already received a $1 billion loan guarantee, says it is trying to avoid a return to bankruptcy. Delta Air Lines has said bankruptcy is an option unless it can eliminate its losses.

“All-time high oil prices and the ever-increasing burden of government taxes and fees are killing the industry,” said Gordon Bethune, chief executive of Continental Airlines.

“Unless fuel prices abate, or the revenue environment improves, we will have to furlough employees and seek wage and benefit concessions,” he continued.

He said Continental would pay $14 billion in taxes this year and another $200 million for security-related expenses.

Rep. James L. Oberstar, a Minnesota Democrat, said more airlines should have used fuel-price hedging before the war in Iraq started to avoid high prices now. Hedging refers to contracts to buy fuel from oil companies at some time in the future at an agreed-upon rate.

JayEtta Z. Hecker, the General Accounting Office’s physical infrastructure director, said problems the network carriers are enduring represent an industry trend.

“We really are looking at a major transformation in the industry,” she said.

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