Experts Say Airlines Close to Failure Due to Fuel Costs

The airline industry is reaching a precarious tipping point, experts say. Airlines are losing mountains of money because jet fuel costs have soared so high.

"Fares are going up. Families are not going to be able to go to Disney World or Vail on a whim anymore," said Kevin Mitchell, chairman of the Business Travel Coalition, a business advocacy group in Radnor. "The cheap tickets are just not going to be there."

Airlines and their passengers won't have new flights to China, either.

After months of clamoring for government approval, US Airways and United and Northwest airlines got the green light in September for nonstop flights to Beijing in 2009, months after the Summer Olympics there in August.

But in recent days, they got cold feet. Why? The fuel cost for a flight to China is so high that airlines don't think enough passengers would be willing to pay the fares to cover it.

"Every one of those airlines has postponed those launches until 2010," said Robert Mann Jr., an airline consultant based on Long Island, N.Y.

The increase in jet fuel prices is outrunning what the airlines are getting from higher fares, said Philip Baggaley, airline analyst for Standard & Poor's, New York.

Baggaley warned that if fuel prices don't abate, more major airlines could file for bankruptcy next year. On his watch list are US Airways and Airtran, which have the weakest credit ratings.

"I've followed this through the 1990s and through 9/11, and I've never seen the industry this bleak," Mitchell said. "With fuel costs like this, major carriers will be out of cash next year."

Soaring crude oil costs have sent jet fuel prices up 54 percent this year over 2007, the U.S. Department of Energy estimated. The largest 10 airlines are expected to pay nearly $17 billion more for fuel than last year, when their tab was $30 billion.

US Airways said the $4-a-barrel increase in crude oil May 21 translates into $150 million more a year in its jet fuel costs.

"The dilemma is they'd have to increase prices dramatically to get to where they'd be sufficiently profitable," Mann said. "That same customer will be stuck heating their home with $5-a-gallon heating oil and filling their car with $4- or $5-a-gallon gasoline. So they won't have any discretionary income to spend on air travel."

Fares have been increasing for months and won't stop rising any time soon, experts said.

Tickets for departures during the next 90 days cost an average of 20 percent more than a year ago, said John Rauser, who analyzes fare data for Farecast.live.com, Seattle.

From Pittsburgh, the cheapest US Airways flight to Los Angeles for July departure is $358 round-trip. That compares with $198 a year ago, said Tom Parsons, chief executive of Bestfares.com, a bargain fare clearinghouse in Arlington, Texas.

Carriers have imposed a host of new or higher fees. For instance, American Airlines on June 15 will start charging $15 for checking a bag, and other carriers might follow suit.

"If you check a bag, it costs you money. If you pack an extra bag, it costs you money. If you check it at the curb, it costs you money," said Parsons. "They are nickel-and-diming you to death."

US Airways announced Thursday that it's dropping complimentary snacks from coach class on domestic flights to save cash.

Carriers are removing weight from aircraft to conserve fuel, Mann said. For example, those in-flight telephones that have been nice customer perks are viewed as paper-weights to be jettisoned.

Some airlines have cut the amount of potable water they carry for drinking or coffee to 60 gallons from the usual 120 gallons. "You save 500 pounds right there," the analyst said.

"The days of popularly priced air travel may be coming to an end," Mann said. "It's going to go back to air travel of the 1960s and 1970s, when it was more for the well-to-do."