Rising Fuel Costs Send Air Fares Soaring

Source: Knight Ridder/Tribune Business News Publication date: Mar 08, 2000

(By D.R. Stewart, Tulsa World, Okla. )

Mar. 8--After a period of relative stability, airline fares are taking off again in response to rising jet fuel prices, and industry executives and observers say prices will continue to rise through summer.

"Air fares have steadily gone up for the past month," said Mary Ann Thoman, manager of Incentive Travel in Tulsa. "Airlines have added specific fuel surcharges of $10 (for one-way trips) and $20 (round trips), but fares have gone up, too. The best thing you can do is plan as far as you can in advance."

As examples of typical fare increases, Thoman said that last month a one-way full coach fare from Tulsa to Newark, N.J., was $696; today it is $706. In February, a 14-day advance-purchase round trip fare from Tulsa to Atlanta was $276; now it is $296. The 14-day advance-purchase round-trip fare to Chicago that was $198 last month is $254 today, she said.

But some fares to some destinations have risen out of proportion to the increased cost of fuel, said Tia Creamer, owner of Executive Travel Service in Tulsa.

"Some fares have practically doubled," Creamer said. "Fares to Los Angeles that were running $200 to $220 round trip are now $400 to $450. A round-trip flight to Madrid from Tulsa is $500. It's crazy. I'm sure the airlines are hurting some from rising fuel prices, but they are taking full opportunity to raise fares."

Aviation fuel is the second-largest expense of the airlines after labor, industry officials said, but unlike labor, air carriers cannot cut fuel use to lower costs.

By March 1, the spot market jet fuel price that airlines pay had risen 169 percent, from 31 cents to 83.25 cents per gallon, compared with the same month a year ago, according to the Air Transport Association, the Washington-based trade group that represents the nation's airlines.

"On an annualized basis, this amounts to a $10 billion fuel cost increase, more than doubling the cost of fuel purchased by the airlines in 1999," the ATA said in a statement submitted last month to the Senate Committee on Energy and Natural Resources.

The association told the Senate committee that if fuel prices averaged 75 cents per gallon throughout 2000, airlines would need to increase fares by $32.50 just to cover the price increases.

"For many passengers, particularly leisure travelers, a $32.50 fare increase for each ticket is the difference between making a trip and staying home," the ATA said.

At [Southwest Airlines], the nation's fourth-largest carrier, fuel price increases spurred the company to institute mileage-based fare increases as of Jan. 25. For trips up to 600 miles, the fee is $2 each way; 601 to 900 miles, the fee is $3 each way, and for trips from 900 miles or more, the fee is $4 each way. Gary Kelly, Southwest's chief financial officer, said the company -- and many airlines -- lock in fuel prices months in advance by hedging or through the futures markets.

Although crude oil on the New York Mercantile Exchange soared above $34 a barrel Tuesday, for instance, Southwest has locked in prices that range between $20 and $27 a barrel for the second, third and fourth quarters, Kelly said.

"It's always a guess, but when January prices started rapidly increasing, it was obvious to us that there was no upward limit," said Kelly, who said he doubted Southwest would institute further fuel charges. "We have a lower cost structure than the rest of the industry. We have healthy profit margins that help us absorb these high fuel prices."

Other airlines are not so fortunate, however, said Paul Hudson, executive director of the Washington-based Aviation Consumer Action Project.

"The airlines have been inhibited from raising air fares because of competitive reasons, but I expect air fares will increase tremendously over the next six months unless we see a break in world oil prices," Hudson said.

In this market, travelers are advised that airlines have even less incentive to find passengers the lowest possible fares, said Kristina Rundquist, spokesman for the American Society of Travel Agents. Bargains on the Internet also will be hard to find, she said.

"You have to ask what (other) airports are in the vicinity (of your destination), whether a Saturday night stay is required, what kind of advance-purchase fares are available, and whether leaving in the morning can mean a lower fare than leaving at night," Rundquist said.

http://beta.newsreal.com/cgi-bin/NewsService?osform_template=pages/newsrealStory&ID=newsreal&storypath=News/Story_2000_03_09.NRdb@2@23@3@426&path=News/Category.NRdb@2@2

-- Carl Jenkins (Somewherepress@aol.com), March 10, 2000