Posted on: Saturday, October 9, 2004
Airfares going up to offset oil costs
By Laurence Frost
Associated Press
PARIS — Airlines the world over are raising fares to offset rising oil prices that threaten to choke off a gradual recovery in air travel and pile more woes on struggling carriers.
British Airways PLC became the latest airline to increase prices yesterday after AMR Corp.'s American Airlines raised one-way domestic flights by $5 earlier this week. Several other U.S. carriers, including UAL Corp.'s United Airlines, Continental Airlines Inc., Northwest Airlines and Delta Air Lines matched American's fare increase.
BA said it was adding $36 to the price of a long-haul round trip as the price of a barrel of light sweet crude soared over the $53 mark in New York yesterday.
Fuel accounts for about 14 percent of average airline expenses. American said it expects to spend about $1 billion more for fuel this year than it did in 2003.
The latest round of fare hikes could dampen demand for air travel, industry watchers warn. Air France and the German airline Lufthansa are among carriers that have scaled back short-term growth forecasts, reflecting expectations of muted demand.
If a prolonged rise in oil prices triggers a broader global economic slowdown, airlines will suffer more as nonessential business travel and ambitious holiday plans are cut back.
The surge in fuel prices since the start of the year, when oil traded at around $30 a barrel — and when many carriers hoped it would fall — is just the latest calamity to beset airlines.
The global industry has lurched from crisis to crisis since the Sept. 11, 2001, terrorist attacks, racking up combined losses of about $30 billion. A tentative recovery in 2002 was reversed the following year by the SARS epidemic, which cut passenger numbers globally and halved them on Asian routes.
Analysts say the biggest victims could be airlines that find it difficult to raise fares — like major carriers in the United States, where overcapacity and competition prevent higher costs from being passed on to passengers.
US Airways and United are both struggling to emerge from bankruptcy. Delta has warned it may file for Chapter 11 unless costs drop.
