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Soaring fuel bills mean higher prices

May 30, 2011, New York, N.Y. - To fly someone from New York to Los Angeles and back, airlines spend close to $330 these days — just on fuel.


May 30, 2011
By The Associated Press

That's a 48 per cent increase from last year and the main reason
vacationers face record costs to fly this summer. To offset their
single biggest expense, airlines have hiked fares seven times this year and raised fees for checking bags and other services.

This has only added to the frustration of most casual fliers who see $59
fares advertised but are quoted prices well above $300 when they
actually try to book. Americans' expectations of a cheap vacation are
being destroyed by the reality of $100-a-barrel oil.

"The passenger has to understand that the airline industry in the United
States is not meant to be a low-cost mass transit system.
The airlines are in business to be profitable,'' says airline analyst Robert Herbst.

A decade ago, fuel accounted for about 15 per cent of airline operating
expenses. Five years ago, it was 29 per cent. Today, it's
35 per cent.

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During the first three months of 2011, the airlines spent $8.7 billion
on fuel, 31 per cent more than last year. In the current quarter, jet
fuel expenses are even higher.

U.S. airlines burn an average of 22 gallons (83 litres) of fuel for
every 1,000 miles (1,600 kilometres) each passenger flies. At
$3.03 a gallon (3.8 litres), airlines are currently spending $330 per passenger just on fuel for a 4,950-mile (7,965-kilometre)
transcontinental round-trip. Some fliers might have paid less than that for their ticket while others could have spent more than
$2,000.

The industry's remaining expenses break down this way:

— Salaries and benefits account for 28 per cent. Ten years ago, it was the biggest expense at 39 per cent. But several major
airlines filed for bankruptcy and that allowed them to renegotiate labour contracts.

— Aircraft maintenance, airport landing fees and travel agency commissions account for 18 per cent.

— Aircraft lease payments, food and drinks and in-flight entertainment
account for 5 per cent. And that's even with most airlines no longer
serving peanuts.

— Another 14 per cent goes to miscellaneous costs, such as updating reservation systems and marketing partnerships with other
airlines.

The price of a domestic round-trip ticket this summer is forecast to be
$430, on average. That includes taxes but excludes baggage fees and
other services.

While airfares should break nominal records, they are not nearly as high
as they were a generation ago once inflation is factored in. The
average ticket in 1978, the year airlines were deregulated, was almost
$650 in today's dollars. Deregulation created more
competition, which ultimately drove down prices for passengers.

With oil close to $100 a barrel, fuel has become the expense that
preoccupies airline executives more than any other. It is the reason
airlines started charging for checked baggage in 2008 and why they have
raised fares more than 10 per cent this year.

Baggage fees — typically $50 per bag, round-trip — have added more to the cost of flying since 2008 than fare increases have.

Despite the rising fares and fees, demand for air travel is rising. The airlines expect 206 million passengers this summer, a
1.5 per cent increase from last year, according to the Air Transport Association.

That suggests airfares aren't likely to decline soon, despite a drop in oil prices this month. The airlines lost a combined $1
billion during the first quarter and hope to recoup that with higher ticket prices.