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Cost of Oil Fuels American Airlines Fare Hike

Posted on: Wednesday, 17 August 2005, 15:00 CDT

American Airlines added surcharges of $20 per round trip Tuesday on most of its international flights, and other carriers are expected to follow as high fuel costs continue to force ticket prices higher.

This latest fare hike by the world's largest carrier is just one in a series of hikes made by American and other major carriers to partially offset the skyrocketing price of fuel. The price of a barrel of crude oil has more than doubled in the past two years and, for airlines, fuel is the second highest expense behind labor.

As of late Tuesday afternoon, American's main U.S. rivals had not indicated if they had matched the international fare hikes. "We're looking at it," said Julie King, a spokesperson for Houston-based Continental, one of American Airlines' top international competitors in the Northeast.

"It is no question that the cost of fuel remains one of our biggest challenges," King said. "For every $1 increase in a barrel of crude, our costs go up $40 million a year."

In the past year, the price of a barrel of crude rose $21, she said.

Up until recently, it had been almost impossible for airlines to raise their prices without losing business to competitors. But fare increases and surcharges have "stuck" in recent months with airlines moving more or less in lockstep when a market leader announces an increase.

Last week, several major carriers followed the lead of United Airlines and increased domestic fares by $4 to $20 per round trip.

Frequent fliers have come to expect that airlines will raise fares every chance they get and so far are not complaining.

"Business travelers are still enjoying a tremendous value," said Kevin Mitchell, president of the Business Travel Coalition, a national group based in Radnor, Pa., that advocates for corporate buyers of airline tickets.

Mitchell said he expects that Continental, Delta Airlines, Northwest Airlines and US Airways are among those likely to move quickly to match American's international fare hike. "This is about repairing balance sheets and staying alive," he said.

"Probably everybody [is going to match]," said Terry Trippler, analyst with Cheapseats.com.

"They have to do this, they just have to."

Shares of American fell 13 cents Tuesday to $13.27 while the stocks of most other major U.S. airlines rose. Northwest rose 48 cents or 11.5 percent to $4.65 after an upgrade to "overweight" by Morgan Stanley.

Shares in Delta, which is struggling to avoid joining United and US Airways in Chapter 11, rose 19 cents, or 13.7 percent, to $1.58. Delta said Monday that it will sell its feeder airline Atlantic Southeast Airlines to SkyWest Inc. for $425 million.

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E-mail: newman@northjersey.com

Source: Record, The; Bergen County, N.J.

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