Higher cost of fuel adds to airline woes
By Kelly Yamanouchi
Advertiser Staff Writer
For the airlines, if it's not one thing, it's another. At a time when nearly all carriers are struggling through financial losses, flight cuts and layoffs, they are now being squeezed by ever-increasing fuel costs.
Advertiser library photo • Dec. 19, 2001
Airlines have been trying to control their expenses by locking in fuel costs before they go higher and passing on increased costs to travelers in the form of fuel surcharges. While the airlines can pass on some of their expense, the higher ticket prices that result can discourage people at a time when war fears and security precautions have slowed air travel.
Both Hawaiian and Aloha airlines have added fuel surcharges to the price of tickets to pass on higher costs to passengers.
There is no clear sign of when the prices will recede. In the event of a war with Iraq, the cost of jet fuel can only be expected to increase further.
Hawaiian Airlines and Aloha Airlines have both added fuel surcharges to the price of tickets to pass on the higher costs.
Aloha Airlines earlier this month started charging its customers an extra $3 per flight to cover the rising cost of aviation fuel. Hawaiian added $2.79 plus taxes per passenger on each leg of its interisland flights.
The hike was because of a fuel price increase of 50 percent to 60 percent, Hawaiian spokesman Keoni Wagner said. Wagner said a penny change in the price of fuel per gallon costs the airline $1 million annually.
It's unclear whether the current fuel surcharge will be enough to pay for the airlines' higher costs. Jet fuel increases could go up further.
Hawaiian Airlines hedges a small percentage of its fuel prices by essentially locking in a certain price for fuel. The strategy benefits the airline if the cost goes higher but not if the price drops, Wagner said.
"We see tremendous volatility," Wagner said. "We are very concerned with the volatility in price and concerned that world events are going to drive prices even higher than they are now."
Aloha Airlines would not disclose whether it hedges its fuel costs as well.
Fuel is the second largest operating expense for airlines behind labor costs, according to the Air Transport Association, an airline industry group. When prices are moderate, fuel costs average 10 percent to 12 percent of industry expenses, but fuel currently account for to 15 percent.
Every one cent increase per gallon of jet fuel costs the industry $180 million per year.
Both Hawaiian and Aloha Airlines have upgraded their fleets with more fuel-efficient planes in recent years. Nationwide, airline fleets are nearly three times more efficient than during the first OPEC fuel crisis. But skyrocketing spot prices for fuel are still hurting the beleagured airlines.
In addition to the effect of higher fuel costs on the airlines' bottom lines, more costly ticket and gasoline prices often soften demand for travel because it is a discretionary expense.
"Whenever you do have increased fuel costs, the general public has less money to spend on general things," said Ron Letterman, president of Classic Custom Vacations, a major tour operator for travel to Hawai'i. "How negative is it, I don't know."
Higher energy prices can have broad effects, extending beyond air travel. According to the Air Transport Association, "major recessions of the past 30 years can, in large measure, be attributed to the steep increase in energy prices."
"The travel industry is affected by so many things right now," said Letterman. "Whether it's the general state of the economy, whether it's the threat of war in the Middle East, whether it's increased fuel surcharges, whether it's airlines bankruptcies, there's so much out there.
"We're reeling."
Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.
