Wednesday, May 19, 2004

From combined dispatches

Struggling U.S. airlines pleaded yesterday for President Bush to stop diverting oil from the market to the Strategic Petroleum Reserve at a time of record jet-fuel prices.

“Despite some encouraging estimates that traffic levels are likely to return to pre-9/11 levels this summer, sustained high fuel prices have all but wiped out any chance of profitable year for the industry as a whole,” said Air Transport Association President and Chief Executive Officer James May. The trade group represents the major U.S. airlines.

Mr. Bush ordered in November 2001 that the Strategic Petroleum Reserve, stored in huge underground salt caverns along the coastline of the Gulf of Mexico, be filled to its maximum capacity of 700 million barrels.

The reserve is at a record 659.5 million barrels and growing even as oil prices stay high.

Minutes before the airlines issued their plea, Mr. Bush told reporters that he would not consider releasing oil from the reserve.

High fuel costs have rocked the major airlines, already struggling with sluggish demand, high costs and competition from budget carriers. They have been adding fuel surcharges to help offset the cost.

Continental Airlines on Tuesday announced an immediate worldwide fare increase and said it was considering further job cuts to deal with fuel prices.

Fares increased by $20 each way for flights over more than 1,000 miles and by $10 each way for shorter flights.

American Airlines said last week that fuel prices will add about $400 million to 2004 operating costs.

Southwest Airlines Co., the world’s largest low-fare carrier, said yesterday it will consider raising ticket prices on some routes because of record jet-fuel prices, Chief Executive Officer James Parker said.

Southwest has been hurt less than other major airlines by higher fuel prices because it has hedged 80 percent of its needs for this year and next at $24 or $25 per barrel of oil. The carrier’s costs still may rise as much as $100 million this year on the other 20 percent.

The Air Transport Association said every $1 increase in the price of oil represented $425 million in additional expenses for the airline industry.

Energy analysts were projecting an average oil price for the year of $37 a barrel, up $6 from 2003 and representing about $2.5 billion in extra expenses, Mr. May said.

That increase was equal to expected losses for the entire airline industry in 2004, he said.

Mr. May said the association was seeking a “go-slow” middle ground by not advocating the release of oil from the SPR and instead calling for a suspension of additions to the reserve.

Under the proposal, the government would not fill the reserve when oil prices exceeded $30 per barrel.

“We agree that the strategic reserve is an investment in the nation’s future,” Mr. May said. “However, any investor will tell you that you buy low, sell high. Unfortunately, the government is doing just the opposite by accelerating the rate at which it’s filling the SPR at a time when oil prices are sky high.”

“For many carriers, short-term relief, particularly during the peak travel season this summer, is the difference between loss and break even,” the ATA boss said.

Pressure on OPEC also intensified yesterday, as crude prices rose from already high levels despite the cartel’s efforts to reassure markets against a possible shortfall in supply.

The benchmark crude oil on the New York Mercantile Exchange rose 96 cents to $41.50 yesterday.

Senior British and European Union officials called on the Organization of the Petroleum Exporting Countries, supplier of one-third of the world’s oil, to boost output further or risk throttling economic growth.

“Oil now presents a real and emerging risk to the global economy,” said Ed Balls, chief economic adviser at Britain’s Treasury.

“We are concerned about the adverse effects on the world economy of the recent sharp rise in the world oil price,” he told the Foreign Press Association.

OPEC President Purnomo Yusgiantoro said earlier that OPEC is already producing 25.5 million barrels a day, or 2 million barrels above its official output target. It could raise its actual production “if necessary” by up to 15 percent, or an additional 3.8 million barrels, he told reporters at an investment conference in London.

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