US Airline Losses Could Hit USD$10 Billion

September 10, 2005

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US airline losses in 2005 could reach USD$10 billion, due mainly to soaring fuel prices made worse by Hurricane Katrina, the industry's chief trade group estimated on Friday.

To try and stem the red ink, major carriers plan to ask Congress next week for a one year holiday from the federal tax on jet fuel to save USD$600 million, the Air Transport Association said.

"There simply is no rational business plan we can continue to operate under with fuel at the price it is today," Jim May, the association's chief executive, said in an interview with CNBC.

Estimated losses for the year rose from USD$7 billion to between USD$9 billion and USD$10 billion, the association said.

Industry executives plan to make their tax relief request at a Senate hearing next week, a trade group spokesman said. Key lawmakers have already pledged to explore rolling back the jet fuel tax of 4.3 cents per gallon.

Transportation Secretary Norman Mineta said earlier this week the idea was worth looking at but stressed the Bush administration had not formulated a policy on tax breaks for airlines.

Jet fuel traded at USD$1.99 per gallon on Friday compared to a high of USD$2.36 on August 31, two days after Katrina's winds and floodwaters ravaged Louisiana, Mississippi and Alabama. On the Wednesday before the storm, jet fuel was trading at USD$1.91 per gallon.

The biggest airlines burn the most fuel, but they have struggled to raise fares in the face of fierce competition from low-cost rivals. The big airlines have long complained about taxes and fees that can account for more than a quarter of the price of a ticket.

Mike Boyd, a Colorado-based industry consultant, said fuel and fuel alone is driving substantial industry losses just as traffic returned this spring and summer to levels not seen since before the September 11, 2001, hijacked aircraft attacks.

"If oil prices had stayed where they were in 2004 we would be talking about how profitable the airlines are," Boyd said.

Two carriers, United Airlines and US Airways, are in bankruptcy while Delta Air Lines and Northwest Airlines are weighing Chapter 11 filings. All have cited high fuel prices for their woes.

Battered by fuel increases, low fare carrier Independence Air could also seek court protection.

Since the hurricane struck, big airlines are loading extra fuel on some flights rather than risking their operations to potential supply shortages or slowdowns at certain airports in the Northeast and Southeast.

(Reuters)