Airlines Cringe As Jet-Fuel Prices Soar 22% in Just 2 Days

The USA’s already staggering airlines were dealt a crushing double blow by Hurricane Katrina, as jet-fuel prices soared 22% in two days.

The killer storm also closed off airlines’ avenue to bargain jet fuel. Historically, jet fuel refined in the Gulf Coast region has been cheaper than fuel refined on the West or East coasts. But Katrina has eliminated the gap and diminished the ability of airlines to save money by filling up in the South.

Gulf Coast jet fuel soared to $2.30 a gallon at the close Tuesday, up from $1.89 when trading opened on Monday, said tracker Oil Price Information Service.

Jet fuel on the West Coast, normally higher than the Gulf Coast, soared to $2.25 on Tuesday, up from $2 on Friday.

Ben Brockwell of the Oil Price Information Service said that Tuesday trading was “panic driven” because traders worried that impediments like closed refineries and obstructed roads will constrict supply.

Over the last 18 months, the regional price gap has been so wide that airlines could save substantial sums by having their planes carry extra fuel purchased in the South.

That gap, which has fluctuated from 10 cents to 25 cents for most of the year, disappeared Tuesday.

As the pictures of the widespread devastation were being beamed out of the stricken area, the price of Gulf Coast jet fuel pushed past the price of jet fuel refined elsewhere.

Jet fuel at $2.30 a gallon anywhere is a serious concern to the airline industry. The price is up 43% since Memorial Day, and 86% in the last 12 months.

Airlines will begin feeling the latest price increase by late this week, Brockwell said.

“It will put even more of a crunch in their cash positions,” he said. “They’ll all feel it.”

The sickest of the carriers will feel it the most. Delta, based in Atlanta, buys lots of Gulf Coast jet fuel. Discount king Southwest, with its historic route structure in Texas and its strength in the South and Florida, also buys a lot of Gulf Coast jet fuel, as do the two other Texas-based major carriers, American and Continental. Southwest gains some insulation by locking in the price of most of its fuel through futures contracts.

“All the major airlines, Southwest excepted, will be in Chapter 11 bankruptcy sometime in the next five years,” said veteran industry consultant Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University in Daytona Beach, Fla. “But for those already leaning on the edge, this makes it a very simple decision for them.”

Delta, American, Northwest and Continental are the big airlines not now under bankruptcy-court protection.