Airline industry would take critical hit - East Valley Tribune: Business

Airline industry would take critical hit

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Posted: Sunday, February 16, 2003 12:41 am | Updated: 1:40 pm, Thu Oct 6, 2011.

An already turbulent airline industry is bracing for the possibility of fewer passengers should the United States go to war with Iraq.

Fuel prices and international flights will be hardest hit once the nation enters a conflict, airlines and industry experts say. Carriers already worried about the future went before Congress this week to ask for relief against skyrocketing fuel prices.

"The airlines are in perilous financial condition," said James May, president of the Air Transport Association, an industry trade group.

Airlines want the federal government to open up the strategic petroleum reserve and repeal the jet fuel tax to help ease the price crunch.

“It could certainly be a difficult time in terms of fuel prices,” said Janice Monahan, spokeswoman for Tempe-based America West Airlines. “They are at the highest they've been in 10 years.”

A 1-cent increase in the cost of jet fuel translates to $4.2 million for the company, she said. Airlines asked for help because the higher prices are combining with increasing insurance and security costs to play havoc with the cost-cutting measures they are taking to return to profitability.

In the first eleven months of 2002, jet fuel prices rose 27 percent, according to Oil Price Information Service. Since the beginning of December, the rate of increase has jumped to 55 percent. Spot prices for jet fuel — a key index for airline fuel costs — are up 100 percent in just one year.

Every major U.S. airline has posted record-setting loses since the Sept. 11, 2001, terrorist attacks. Last year the industry lost $9 billion. Two carriers, United Airlines and US Airways, filed for bankruptcy and many others, including America West, had to take huge government loans to help them stay afloat.

Add a war and things could get even more bleak, said Michael Hitt, an Arizona State University aviation industry expert.

“For at least for the short-term, I expect the war will have a negative effect on probably much of the travel and tourist industry unfortunately, but certainly airlines partly because of 9/11,” he said. “It could also curtail travel within the states, but I would guess international travel in particular is where the major effect may occur.”

David Stempler, president of the Air Travelers Association, a passenger advocacy group, said there are so many variables to war it's hard to predict what will happen to carriers.

“To the extent that passengers and airlines are prepared, we may be better off,” he said. “But who could have prepared a 9/11 and the grounding of all these planes. Clearly the standard thinking is maybe it would curtail service initially to the Middle East and areas that surround it and then as the circle widens, as the war gets broader and there are issue that reverberate out, it could go beyond that.”

Should passengers be scared off, Monahan said America West is unlikely to cut fares to lure travelers back.

“Lowering prices during a time when people are choosing not to fly maybe out of fear or because they prefer to stay close to home with their families . . . if that's the case, lowering prices really won't change anything,” she said. “Those people are not choosing not to fly because the prices are too high.”

At Lufthansa Airlines, which features a nonstop daily flight between Phoenix and Frankfurt, Germany, fare sales and other promotions will attempt to keep passengers optimistic about flying, said Jennifer Urbaniak, a company spokeswoman.

“If we got to war, we'll obviously respond to any fluctuations in demand,” she said. If we find there is a lack of bookings all of a sudden on the Phoenix flight, then we'll look at the flight and frequencies and make a decision at that time. I can tell you after 9/11 we were one of the few airlines that stayed in every market we flew out of in the U.S. and Canada . . . and we have every intention to do the same if there is in fact a war."

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