US airlines may cut more capacity on account of fuel costs

Mumbai: US airline executives yesterday stressed the enfeebling nature of rising fuel prices on the airline industry, cautioning against further capacity reductions that could be warranted by fuel costs.

US carriers say they have been unable to broach passing on record fuel price hikes to customers, and that the current aviation environment will harm US airlines more than what was witnessed after 9/11. This was the view expressed by Alaska Air group chairman, president and CEO William Ayer, at the  Merrill Lynch Global Transportation Conference in New York. He said his airline, Alaska Airlines, spends an average $147 per passenger on fuel costs alone on a Seattle-Newark flight, adding that ''we're paying more now for refining margins than we used to pay for the all-out product just a few years ago."

Southwest Airlines has the onerous distinction of being the only profitable US carrier during the first quarter. What's more, the airline is still contemplating expansion. Speaking to Bloomberg News, CEO Gary Kelly said that the low cost carrier is "willing to grow the fleet, and that's very different than what's going on with our competitors." He said Southwest Airlines may keep almost 10 aircraft due for retirement this year, and is looking to induct 14 new aircraft into its fleet in 2009. Reports have quoted Kelley as saying that Southwest has no plans to charge for extra bags, or for on-board drinks, unlike some of its competitors, in what he termed as a "great opportunity" to "differentiate itself from the pack."

Delta Air Lines has said that it is further hiking its second-half year-over-year domestic mainline capacity reduction, adding another three per cent to the previously announced 10 per cent.

American Airlines parent company AMR Corp.'s chairman, president and CEO Gerard Arpey said high fuel costs have brought to nought all the cost-cutting progress made over the last few years, and that fuel prices continue to outpace fares, despite the airline's best efforts. American Airlines is presently 33 per cent hedged at $2.55 per gallon, which marks an average cap of $78 per barrel of crude oil for the full-year of 2008. Arpey said that American Airlines (AA) still has plans to accept delivery of 70 Boeing 737NGs over 2009 and 2010, to phase out the fuel-inefficient MD-80s, and is mulling pushing forward deliveries "at an even brisker pace." He said AA  is also considering "accelerated retirement" of its A300s.