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Record-high fuel prices drive airlines into red

Record-breaking fuel costs are driving already struggling U.S. airlines into the red, their executives told lawmakers Thursday.
/ Source: Reuters

Record-breaking fuel costs are driving already struggling U.S. airlines into the red, their executives said Thursday, but lawmakers told them they should not expect Congress to provide major new aid.

At a House of Representatives hearing on the state of the airline industry, only one of six airlines represented — Airtran Airways — could confidently predict a profitable year.

But even Joseph Leonard, AirTran’s chairman and CEO, hedged his bet, saying AirTran could stay in the black only if oil did not reach $50 a barrel. U.S. crude oil futures soared to a record high of $42.45 a barrel on Tuesday.

UAL Corp.’s United Airlines, Continental Airlines and Northwest Airlines all said they expected soaring fuel costs to preclude profitability. America Westand Frontier Airlines said they could not be sure.

“Each one dollar increase in the price of oil increases the airline industry’s cost of jet fuel by $450 million on an annualized basis,” Gordon Bethune, Continental’s chairman and chief executive, told the House Aviation Subcommittee.

The surging cost had added $700 million so far just to Continental’s fuel bill, he said. “Even we will declare a significant year-end loss.”

The U.S. airline industry expects to post a net loss of more than $3 billion in 2004, with traditional carriers in worse shape than low-cost carriers.

The industry’s main lobbying group, the Air Transport Association, asked again that the government fund the cost of aviation security and opposed a plan by the Bush administration that would require airlines to pay an additional $400 million for security.

Contentious security costs
But the chairman of the House panel said Congress would not be riding to the rescue of the airlines as it has several times since the hijack attacks of 2001 led to plummeting demand for air travel.

Airlines in trouble “must be prepared to fend for themselves,” said Rep. John Mica, a Florida Republican.  “Congress is not going to underwrite losing airline operations,” Mica declared.

Congress may assist the airlines with high-end “war risk” insurance, he said, but added that some of the carriers “must either reduce their costs dramatically or they will not survive.”

Mica also suggested the industry should be picking up more of the security costs now borne by the government, saying “the shortfall has to come from somewhere.”

But Bethune replied: “If you look at it as a national security issue, it’s not a subsidy.” He said airlines were “hobbled” by having to pay more than their fair share of security, compared to the cruise ship, rail and shipping industries.

Airlines currently pay roughly $300 million a year to support government-run passenger and baggage screening and other security measures.

They also collect more than $1 billion annually in security fees from passengers and pass them on to the government — a program put in place after the Sept. 11, 2001, attacks that they say limits their ability to raise fares.

A General Accounting Office official, JayEtta Hecker, testified that despite the industry turmoil, low-cost airlines are growing and profitable.

Demand was back to about its pre-Sept. 11 levels, she said, but this was not benefiting the older “legacy” carriers.