HOUSTON--Surging fuel costs are forcing financially strapped US airlines to consider extreme measures from consolidation to cutting the weight on airplanes, according to industry sources.
Fuel costs have been cited as a factor in a recent wave of airline shutdowns, including Skybus this weekend.
This is causing the airline industry to look inward, said William Swelbar, industry analyst and research engineer for the Airline Data Project at the Massachusetts Institute of Technology (MIT).
The airlines desperately need to reinvest in itself," Swelbar said.
As of 2 April, USG (US Gulf) spot prices for jet fuel were 314.00-314.25 cents/gal, up roughly 75% from the same time last year, according to global chemical market intelligence service ICIS pricing.
At the same time, demand for jet fuel is also increasing, according to the US Energy Information Administration (EIA). In the past four weeks, demand rose 3.7% from the same time last year.
For every one dollar increase per barrel of crude oil, it will cost airlines an additional $460m per year, said David Castelveter, communications vice president for the Air Transport Association, a trade group.
This industry is successful in finding new revenue streams but not successful at passing those costs on, Castelveter said. This is the most daunting challenge of our industry.
The fuel bill for airlines is expected to exceed $55bn in 2008, compared with $41bn in 2007, according to the Air Transport Association. In 2003, the industry's fuel bill was $15bn.
This year should be ugly, a midwest jet fuel buyer said. These high jet fuel prices are making it increasingly difficult to find ways to hedge costs.
In addition to Skybus, ATA Airlines and Aloha have ceased operations, citing fuel costs as one of the main factors.
Competition and fuel prices will decrease earnings for domestic and international airlines this year, according to the International Air Transport Association (IATA), another industry trade group. Earnings for domestic and international airlines will likely drop to $4.5bn from $5.6bn in 2007, the IATA said.
Investment bank Goldman Sachs said airlines must adjust operations and learn how to operate in a high fuel-cost environment, such as scaling back fleets and capacity plans as well as finding new ways to reduce weight.
Alaska Airlines found it could save $10,000/year in fuel costs by removing five magazines/aircraft, according to the Air Transport Association. Its new beverage cart, at 20 lb (9 kg) lighter, could save $500,000/year in fuel costs.
Other airlines are considering mergers and consolidation to mitigate high jet-fuel costs.
Fuel is the no 1 catalyst pushing consolidation activity, said Swelbar, the industry analyst.
What airlines are looking to do is to expand the scope of their respective networks to generate more revenue while not having to do any more flying, he said.
Fuel costs have been cited as a factor in a recent wave of airline shutdowns, including Skybus this weekend.
This is causing the airline industry to look inward, said William Swelbar, industry analyst and research engineer for the Airline Data Project at the Massachusetts Institute of Technology (MIT).
The airlines desperately need to reinvest in itself," Swelbar said.
As of 2 April, USG (US Gulf) spot prices for jet fuel were 314.00-314.25 cents/gal, up roughly 75% from the same time last year, according to global chemical market intelligence service ICIS pricing.
At the same time, demand for jet fuel is also increasing, according to the US Energy Information Administration (EIA). In the past four weeks, demand rose 3.7% from the same time last year.
For every one dollar increase per barrel of crude oil, it will cost airlines an additional $460m per year, said David Castelveter, communications vice president for the Air Transport Association, a trade group.
This industry is successful in finding new revenue streams but not successful at passing those costs on, Castelveter said. This is the most daunting challenge of our industry.
The fuel bill for airlines is expected to exceed $55bn in 2008, compared with $41bn in 2007, according to the Air Transport Association. In 2003, the industry's fuel bill was $15bn.
This year should be ugly, a midwest jet fuel buyer said. These high jet fuel prices are making it increasingly difficult to find ways to hedge costs.
In addition to Skybus, ATA Airlines and Aloha have ceased operations, citing fuel costs as one of the main factors.
Competition and fuel prices will decrease earnings for domestic and international airlines this year, according to the International Air Transport Association (IATA), another industry trade group. Earnings for domestic and international airlines will likely drop to $4.5bn from $5.6bn in 2007, the IATA said.
Investment bank Goldman Sachs said airlines must adjust operations and learn how to operate in a high fuel-cost environment, such as scaling back fleets and capacity plans as well as finding new ways to reduce weight.
Alaska Airlines found it could save $10,000/year in fuel costs by removing five magazines/aircraft, according to the Air Transport Association. Its new beverage cart, at 20 lb (9 kg) lighter, could save $500,000/year in fuel costs.
Other airlines are considering mergers and consolidation to mitigate high jet-fuel costs.
Fuel is the no 1 catalyst pushing consolidation activity, said Swelbar, the industry analyst.
What airlines are looking to do is to expand the scope of their respective networks to generate more revenue while not having to do any more flying, he said.
