US regional airlines, pilots join the chorus – ask Congress to control oil speculation

15 Jul 2008

1

The Air Transport Association, Air Line Pilots Association and the Regional Airline Association have joined hands in asking the US Congress to legislate limitations on oil speculation, claiming that the "economic market [for oil] has become divorced from the physical market" and had driven the per-barrel price of the commodity to a point where it was affecting the viability of the air transport industry.

Speaking to the media in Washington, ATA president and CEO James May said that the ''whole business of the way oil is traded is having a dramatic impact, as oil has become the new gold. It has become a financial tool."

May claimed that "index speculators," who trade in commodities futures, have elevated the per-barrel price of oil way beyond the ''cost of production'' at around $65-$70, to a point where it is unable to come down below $140. He said by the end of the year US carriers would have to lay off 30,000 workers and stop servicing around 100 destinations as a result of these sustained high prices of oil.

The ATA, ALPA and RAA are members of the newly formed Stop Oil Speculation Now coalition. The coalition intends to lobby aggressively to push Congress for an immediate imposition of "position limits on index speculative trades" and establish "reporting requirements" for large-scale speculators.

May had earlier termed oil speculation as ''an issue of economic magnitude that dwarfs 9/11."

Some airlines are also sending out emails to their travellers regarding the spiralling price of oil and asking them to demand that Congress impose new rules. The CEOs of the dozen-odd airlines sent a co-signed letter to frequent fliers, asking them to contact Congress about market speculation.

The letter explains that speculators acquire large amounts of oil, and later sell it to each other again and again, jacking up prices each time. ''Then'', it says, ''you pick up the final tab''.

The Stop Oil Speculation Now coalition says that fuel is the root cause for this change of direction in the economic condition of the industry. The coalition says that an estimated $30 to $60 per barrel is actually unnecessary speculative cost. "If we were able to bring the price of oil down $30 per barrel, we'd be pretty happy," May said, explaining that there was no carrier in the business which said that it could continue to survive with oil prices sustaining over $140.

May dismissed the assertion by the department of transportation general counsel, DJ Gribbin, when he said last week that the current level of oil speculation is "not unusual at all", and that oil prices have been driven by ''a significant increase in demand, primarily in Asia,'' terming it as the latest demonstration of lack of expertise by the current DOT.

May explained that the average cost of a domestic US flight ticket is $190, and the per-passenger fuel cost averages at around $138. "Add in $30 in taxes and fees and you have less than $30 per ticket to run the rest of the airline," he said.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more