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Fuel
Friday, 21/01/2018, 17:07:02 PM
Price of jet fuel jumps 22 percent
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Eliab Hermosillo fills a United Airlines jetliner with jet fuel Monday at Denver International Airport. (Judy DeHaas, The Denver Post)
Eliab Hermosillo fills a United Airlines jetliner with jet fuel Monday at Denver International Airport. (Judy DeHaas, The Denver Post)

For the second straight summer, airlines are staring down the barrel of rising fuel prices. Travelers can expect fewer flights, higher fares, elimination of markets and a drop in less-revenue- producing regional jet service.

"It will get very rough out there," said aviation analyst Mike Boyd, whose Boyd Group is based in Evergreen.

The dollar is fading, Boyd said, "and people are dumping dollars to get into commodities, which means oil."

Jet-fuel prices usually are in lockstep with oil, which hit a record high above $147 per barrel last July. Then it dropped in late 2008 to $40 per barrel.

Oil now hovers near $71 a barrel.

"And it will go up more," Boyd said.

In the past month, the price of jet fuel has jumped 22 percent, according to the federal Energy Information Association.

Airlines scrambled last year to counter fuel-price hikes by cutting costs and finding additional revenue. They instituted fees for checked bags, raised fares and cut capacity.

The recent fuel-price climb has airlines chopping more seats. Delta, which lost $507 million on fuel hedges in the last quarter of 2008, announced last week it would cut capacity in September by 10 percent over 2008 levels.

"Airlines will have a hard time passing on this cost," said Kevin Mitchell, spokesman for the Business Travel Coalition, which represents 300 large U.S. and European buyers of business travel.

Current capacity cuts have reduced reliability and value of the system, Mitchell said.

Passenger travel was more than 9 percent lower in the first quarter of this year compared with the same period in 2008, according to the Bureau of Transportation Statistics.

"Our objective is to run an airline that our customers and customers of other airlines want to fly," United Airlines spokesman Rahsaan Johnson said.

Like other airlines, United declined to specify plans to compensate for rising fuel prices.

Airlines embraced hedging last year to stabilize fuel costs. For some, it worked out; for others, it worked against them.

"Everybody is dabbling in hedges, but some got burned so bad last year," Boyd said. "It's smart to look at it now."

Hedging sets the future price of jet fuel. The airline is betting future fuel prices will be higher. But if the market falls, the airline is tied to a higher price.

United, Denver International Airport's largest carrier, had a $370 million fuel-hedging loss in the last quarter of 2008.

Southwest Airlines saved about $3.5 billion from 1999 to 2008 with fuel hedges.

"I think it is crazy to assume and bet on things improving any time soon," Southwest Airlines chief executive Gary Kelly said last week at a New York conference.

http://www.denverpost.com/business/ci_12596912

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