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More Flights May Be Canceled

Posted on: Friday, 7 October 2005, 15:00 CDT

By Trebor Banstetter, Fort Worth Star-Telegram, Texas

Oct. 7--D/FW AIRPORT -- American Airlines is struggling amid the skyrocketing cost of refining jet fuel, which could force the airline to cancel more flights in coming weeks and months, Gerard Arpey, the airline's chief executive, said Thursday.

Speaking at a meeting of the World Affairs Council of Greater Dallas at the new Grand Hyatt Hotel at Dallas/Fort Worth Airport, Arpey said fuel costs are one of the major challenges facing the industry today.

In addition to the high cost of crude oil, the expense of refining oil into jet fuel has risen sharply in the weeks after Hurricanes Katrina and Rita. Much of the nation's jet fuel supply is refined along the Gulf Coast.

"It's been an extraordinary price increase," he told reporters after his speech.

On Wednesday, Arpey said, the price of a barrel of jet fuel in spot markets hit $130.

With crude oil costing more than $60 per barrel, that means refining costs were more than doubling the price for airlines.

At the beginning of this year, the refining cost was less than $7 per barrel, according to the Air Transport Association.

"As an industry, we're going to have to figure out how to pass that cost on to our customers, which so far we haven't been able to do," he said.

Last week, American temporarily cut 15 flights, mostly from D/FW Airport, because of high fuel costs.

Those flights are scheduled to resume at the end of the month, but Arpey said Thursday that American might keep them grounded if the fuel situation persists.

And more cancellations could come, he said.

"We're monitoring the situation," he said. "We're going to continue to look and decide whether we may need to do more."

He added that grounding flights won't fix the issue, describing it as "something we're doing on the margins to help a little bit."

But some analysts believe that more flight cancellations are likely to come from American and other major airlines.

With jet fuel prices "surging to new highs," said airline analyst Jamie Baker of JP Morgan Securities in a research note Thursday, "further reductions [are] believed imminent."

Arpey also said American was closely watching pension-overhaul efforts in Congress. He said he was heartened that a recent Senate bill would provide relief to American as well as bankrupt airlines Northwest Airlines and Delta Air Lines.

American desperately needs the government to relax pension-funding rules, which are costing the airline hundreds of millions of dollars annually.

But he cautioned that the situation remains fluid. "The bill is still evolving, and it's a long way from being resolved," he said.

Arpey also took the opportunity during his speech to criticize rival Southwest Airlines, over that carrier's campaign to overturn the Wright Amendment.

The amendment is a 1979 law that restricts flights from Dallas Love Field airport to cities in Texas and border states, as well as Mississippi, Kansas and Alabama. Executives with Southwest, which operates solely from Love Field in North Texas, have been lobbying Congress for nearly a year to repeal the law so they can operate long-haul service from Love.

Arpey said that if Southwest wants to offer longer flights, the airline should move to D/FW. He also called Herb Kelleher, Southwest's chairman, and Gary Kelly, the airline's chief executive, hypocrites for advocating repeal of the amendment while supporting restrictions that prevent Love Field from growing beyond 30 gates.

"But there's one thing that Herb Kelleher and I can agree on," he added. "Texas has got to beat Oklahoma this weekend. Hook 'em, 'Horns!"

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Copyright (c) 2005, Fort Worth Star-Telegram, Texas

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AMR, DAL, NWACQ, LUV,

Source: Fort Worth Star-Telegram (Fort Worth, Texas)

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