Airline Industry Fears $60 a Barrel Oil

Most carriers are defenseless against increases in fuel prices because they lack the cash or financial credibility to lock in a future price by contract, the report said.

Published: 09-Mar-2005

ine executives, burdened by huge losses despite fair hikes and capacity cuts, fear oil prices may reach $60 a barrel, USA Today reports.

One consultant said his airline clients are running worst-case financial simulations to anticipate the effects.

Jet fuel accounts for major portion of airlines' operating expenses and oil prices have been rising all year, currently hovering at over $55 a barrel. Recent decisions by large airlines to raise fares by as much as $20 for a round trip won't cover the added costs in fuel prices, said consultant David Swierenga of Vienna, Va.

He said continuation of jet-fuel costs at current levels will add $600 million to airlines' operating costs for the January-March quarter, 11 percent higher than what had been budgeted.

Despite an expected increase in passengers, Swierenga now expects the industry to lose as much as $2.5 billion this year, driving cumulative losses since 2000 to $33 billion.

Most carriers are defenseless against increases in fuel prices because they lack the cash or financial credibility to lock in a future price by contract, the report said.

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