HEADLINE: Talk
of Iraq war hurts already-struggling airlines
BYLINE: Dan Reed and Marilyn Adams
BODY: Rumblings of possible war with Iraq are
inflicting pain on still-staggering U.S. airlines and raising the possibility of
new fuel surcharges on tickets in the short run.
In the past month, jet fuel prices jumped as much as 30% to 88 cents a
gallon on the spot market. Consumers are flying less than expected. And the
price of security-related and war-risk insurance continues to
soar even as the carriers struggle to cut costs.
Meanwhile, most airline stocks, down since last year's terrorists
attacks, have tumbled in recent weeks to the lowest inflation- and
split-adjusted levels in a quarter century. They fell again Wednesday after a
Merrill Lynch analyst downgraded the stocks of Delta, Northwest and Continental
airlines and widened his loss estimates on most carriers. Delta President Fred
Reid said Wednesday that more jobs will be cut there.
"I'm seeing a lot of pain for big airlines," said Ben
Brockwell, editor of the Oil Price Information Service's newsletter.
Jet fuel prices rose faster than crude
because refiners trimmed production more, he says. And airlines haven't hedged
enough to protect against short-term price run-ups this fall and winter.
U.S. light crude rose 40 cents Wednesday in
New York to $ 29.48. In the past, a price of $ 30 has served as an alarm for
economists and policymakers. At least through the fourth quarter, Brockwell
says, higher prices are inevitable. "The airlines are not crying wolf."
American and United have doubled their fuel
surcharge on cargo shipments. And some analysts expect new or larger passenger
fuel surcharges this fall and winter.
"The
industry's financial condition is perilous," much more so than on the eve of the
Gulf War in 1991, says the Air Transport Association's Michael Wascom.
The ATA wants Congress to lock in for six
months the rates on war risk insurance, so the cost won't
bankrupt airlines overnight if the shooting starts. ATA also seeks relief from
some security-related fees and costs that airline executives complain fall too
heavily and unfairly on the industry's shoulders.
But the potential drop in the number of people flying is the airlines'
biggest war concern, says Phil Baggaley, Standard & Poor's airline bond
analyst.
A big decrease in demand might
force carriers to drop prices to very low levels to stimulate demand and
generate cash. Fliers would benefit in the short term, but the destabilization
of the industry could lead to airline failures and mergers.
GRAPHIC: GRAPHIC, Color, Karl Gelles, USA TODAY,
Source: Air Transport Association (BAR GRAPH)
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