The top U.S. aviation regulator on Wednesday touted a year-old program aimed at saving airlines fuel, but carriers nervously watching jet fuel prices again exceed post Hurricane Katrina highs said fuel costs still threaten the industry's financial recovery.
Marion Blakey, the administrator of the Federal Aviation Administration, said a decision by the agency to let planes fly closer together at high altitudes beginning in 2005 has helped airlines fly more direct routes and save money.
"It enables pilots and carriers to get a great deal more out of the system. At the same time of course with high fuel costs right now, it's an extraordinary amount of money that's been saved on fuel burn alone," Blakey said.
The FAA has estimated the change, when fully implemented, could save carriers as much as 500 million gallons of fuel annually. But agency officials could not say after Blakey's comments what the savings were for the first year.
The industry's top lobbying group, the Air Transport Association, also could not say how much the change had saved its members — the biggest airlines. But industry figures show that consumption in January alone was off 10 percent due to a range of factors.
Severe financial pressures and bankruptcy at four airlines since 2002 have reduced the number of planes in the air as well as flights. But the airlines clearly are not mitigating the soaring fuel prices through regulatory changes or from its own initiatives.
The ATA's chief economist, John Heimlich, said crude oil prices are expected to average nearly $70 per barrel this summer, which he said would hurt recent progress by the industry in shaking off the staggering losses that began in 2001.
"These high fuel prices highlight the need for airspace modernization to mitigate fuel expenses," Heimlich said. "A modernized system could save hundreds of millions of gallons of jet fuel per year."
Blakey said the FAA is closing in on a draft of what the next generation air traffic system will look like. But experts say such a plan — moving from radar systems to satellite-based navigation — is still years away from fruition.
In the meantime, airlines have sharply cut back domestic capacity — available seats — and are flying planes full and raising fares to offset fuel prices. Improved pricing power has helped them boost revenue but analysts worry about oil prices exceeding $70 per barrel and staying there. Crude prices hovered near $69 per barrel on Wednesday.
The industry's total fuel expense increased by $10.3 billion between 2004 and 2005 and price data for the first quarter of 2006 suggests average higher prices for this year.
On Wednesday, jet fuel prices on spot markets averaged between $2.06 and $2.10 per gallon — again exceeding levels of more than $2 per gallon seen for the first time after Hurricane Katrina.
Some of the biggest airlines have recently raised their fuel price forecasts for the year but estimates mainly are below current spot prices. No. 1 American said on Tuesday it increased fuel surcharges on most trans-Atlantic and trans-Pacific flights, excluding to Japan, by $10 one-way and $20 round-trip.