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ATA Says Record Fuel Prices Will Impact Passengers and Industry

July 11, 2008 By: George Dooley

The Air Transport Association (ATA) is warning that skyrocketing oil prices will see the airline industry’s 2008 jet fuel bill grow $20 billion higher than last year's, and warns of the effects on passengers, communities and the airlines. New in-depth economic analysis by John Heimlich, the ATA’s chief economist, says 2008 fuel costs could go higher and compound the airlines' already formidable problems.

“What's clear is that if high oil prices persist then the very nature of air travel as we know it will be forced to change," ATA President and CEO Jim May said. "If airlines cut service as much as some industry analysts have indicated is necessary, passengers will see fewer daily flights to many cities, more crowded planes and more inconvenience overall.”

May said that soaring fuel prices are "the worst economic shock since 9/11, and, possibly, one that is worse." The ATA is not only urging congressional action but has set a list of key ATA energy priorities. The ATA, representing the majority of U.S. carriers, also cites industry analysts who say that since ticket price increases aren't enough to overcome soaring fuel costs, major capacity cuts could be next.

The ATA reports that, since the end of 2007, 10 U.S. airlines have entered bankruptcy: MAXjet, Big Sky, Aloha, ATA, Skybus, Eos, Air Midwest, Champion, Frontier and Gemini Air Cargo (Frontier and Gemini are still operating). Another sign of crisis is that U.S. airlines have announced (mid July) the reduction of some 29,000 jobs and the retirement of more than 700 aircraft. Scheduled service has been eliminated from 97 of the more than 600 airports that had scheduled service in 2007.

The ATA’s recommendations include: change U.S. policy on use of strategic energy reserves to make supplies more readily available and invest proceeds in future supply; change the rules regulating energy commodity futures markets to make trading fairer and more transparent; oppose selected foreign countries’ subsidization of consumer fuel prices; expand refining and distribution (pipeline) capacity to meet growing global demand for middle distillates; responsibly develop U.S. energy resources, including petroleum, gas, coal, nuclear, solar, wind and others and develop new, environmentally responsible aviation fuels.

Current ATA research says, in 2008, crude oil and jet fuel prices have reached all-time highs, with significant implications for air service. U.S. airlines are projected to spend $61 billion on fuel this year, $20 billion more than in 2007 – an increase equivalent to the compensation and benefits of 267,000 airline workers or the acquisition of 286 new jets. This higher fuel bill is the principal driver of the projected loss of $7-$13 billion in 2008, the ATA says.


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