Saturday, June 14, 2008

US airline catastrophe looms under record oil prices

WASHINGTON - THE United States airline industry is set to crash as record oil prices threaten to push several carriers into bankruptcy, threatening 'our American way of life', an industry study said.

'As a consequence of the skyrocketing price of oil, the US commercial aviation industry is in full-blown crisis and heading toward a catastrophe,' said a study issued by AirlineForecasts and the Business Travel Coalition on Friday.

At current oil prices near US$130 (S$179) a barrel, several large and small US airlines will default on their obligations to creditors, beginning at end-2008 and early 2009, the study said.

The grim industry snapshot comes as US airlines cut fleets, jobs and capacity and add fees as they struggle with spiralling jet fuel costs and a weak domestic economy.

On Thursday, United Airlines and US Airways announced they would start charging US$15 for the first checked bag. Both carriers this month became the latest to try downsizing to survive the fuel crisis.

The study shows that oil at US$130 will increase yearly airline costs by US$30 billion, while airlines will be able to generate only US$4 billion in fare increases and incremental fees.

Recently introduced bag-checking charges and other fees would only yield US$1 billion to US$1.5 billion at the industry level.

'The implication is that several large and small airlines will ultimately end up in bankruptcy, and of those, some will be forced to liquidate,' the study said.

'Stabilising this ailing industry must become a national policy priority,' the study said, calling on the White House, Congress, federal regulators and state officials to take action.

Every US$10 increase in the price of oil results in US$4 billion in additional costs for the 40 passenger-only airlines, according to the study, 'Oil Prices and the Looming US Aviation Industry Catastrophe: A Hole In The Transport Grid'.

The airlines are on track to spend US$30 billion more on jet fuel in 2008 versus 2007, it found, with the top 10 carriers accounting for almost US$25 billion.

The study found that with oil prices in the US$135 range, the airline industry 'could be forced to park upwards of 1,000 aircraft and shed over 80,000 employees, and still not return to health'.

'The consequences will be devastating to US jobs, families, businesses, communities and our American way of life.'

Oil spiked to a record US$139 a barrel a week ago, nearly double last year's US$72 average, and settled above US$134 on Friday.

The surge in oil prices is showing no sign of abating amid strong demand, particularly from developing powerhouses China, India and Brazil, and tight supply.

Some analysts are predicting oil will hit US$200 a barrel in the coming months, after crossing US$100 for the first time in early January.

To cover oil prices at US$130 to US$140, fares would have to go up by 21 to 24 per cent and airline seat capacity reduced by 18 to 20 per cent, the study said.

'Were oil to climb toward US$200, as some analysts predict, the damage escalates and the airline industry could be forced to shrink 35 per cent or more,' it said.

'Absent direct policy intervention, the likelihood is several airlines will fail.'

The Business Travel Coalition said it plans to put forward specific proposals to President George W. Bush's administration and Congress to help alleviate the crisis.

'We urgently need a new energy policy that will give the airlines a fighting chance to survive and recover,' the study said. -- AFP

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