Sunday, February 27, 2011


Rising oil prices may ground airlines' hopes for profits
Like everyone else filling up a gas tank these days, airlines are feeling the pain at the pump.
Jet fuel spot prices have jumped 19 percent in just the past two months, and with continued political unrest in the Middle East and elsewhere, industry analysts can only guess how much higher the prices will go.
But they know that if the price of jet fuel reaches 2008 peaks, the airline industry could be in for a year of red ink.
"Price movements of 9 percent in a day are exactly what this industry does not need," said Bill Swelbar, an airline researcher at the Massachusetts Institute of Technology.
Airlines seem to be adjusting, although not in a way passengers would likely prefer.
Since the beginning of the year, domestic carriers have raised airfares five times. In addition, two successful fare increases have targeted last-minute business travelers. On Wednesday, United Airlines added a $20 fuel surcharge on round-trip tickets.
"If jet fuel prices remain at current levels [$3.10 per gallon], capacity and jet fuel consumption will be reduced further, controllable costs shaved more, airfares raised again, and new fees and fuel surcharges added," CRT Capital Group analyst Michael Derchin wrote last week in a note to investors.






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