"Fuel prices could prompt airlines to ground planes"
11-09-2007, 07:09 PM
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"Fuel prices could prompt airlines to ground planes"
A crazy article (and kind of scary)...
Fuel prices could prompt airlines to ground planes
By John CrawleyFri Nov 9, 5:21 PM ET
United Airlines, a unit of UAL Corp (UAUA.O), could ground up to 100 planes, if necessary, to save money on fuel expenses, a company official said, and other big carriers are talking about similar steps, an industry source said on Friday.
Separately, two U.S. senators have asked federal aviation and transportation officials to look into a report that carriers may, in some cases, have cut back on fuel reserves to reduce expenses, possibly violating safety regulations.
Carriers are scrambling to meet demand and maintain their profit momentum from a successful summer travel season amid continued pressure from high energy prices.
Crude oil was up nearly $1 on Friday on the New York Mercantile Exchange to $96.40 per barrel. Every $1 increase in crude oil prices cost airlines $470 million, industry statistics show.
As energy prices have soared, airlines have sagged on Wall Street. Industry shares collectively were down again on Friday and were off 11 percent for the week.
Jake Brace, United's chief financial officer, told investors this week the company has the option of grounding planes if flying them becomes too costly or if demand wanes.
"We have a lot of flexibility in our fleet in that we have a little over 100 unencumbered aircraft that we could ground, sell, whatever we needed to if the demand environment were such that it didn't make sense to fly those planes," Brace said.
An industry insider familiar with planning at the biggest carriers said on Friday that other airlines are also talking about idling aircraft, if fuel prices continue to skyrocket. The insider asked not to be identified.
Another industry expert said bigger airlines like United, American Airlines (AMR.N), and Northwest Airlines (NWA.N) historically have had flexibility with their aircraft.
"They all have significant parts of their fleet they can park cheaply," said airline consultant Michael Boyd.
Carriers have raised fares to offset higher costs, and a report this week also suggested airlines may have underfueled planes to reduce weight, making them less expensive to fly.
Sens Frank Lautenberg and Robert Menendez, both New Jersey Democrats, sought investigations into a report by WABC-TV in New York that more planes over a six-month period this year landed at Newark airport with minimum fuel than in a similar time frame two years ago. In some cases this year, pilots declared fuel emergencies for immediate clearance to land, the report said.
"Operating under these conditions regularly can put passengers at risk, especially if multiple landing attempts must be made," Lautenberg wrote to Transportation Department Inspector General Calvin Scovel.
Menendez asked the FAA to investigate and issue interim guidelines to ensure there is a greater margin for error. Current rules require passenger aircraft have enough extra fuel to reach a second airport, if necessary, and fly at least 30 minutes beyond that.
The FAA said it does not regularly track landing requests based on low fuel but would investigate.
"We don't have any indication right now that airlines are flying planes with less than the required amount of fuel," FAA spokeswoman Laura Brown said.
Major carriers, represented by their trade group, the Air Transport Association, did not address the matter directly in a statement but said the FAA regulations are adequate.
Fuel prices could prompt airlines to ground planes
By John CrawleyFri Nov 9, 5:21 PM ET
United Airlines, a unit of UAL Corp (UAUA.O), could ground up to 100 planes, if necessary, to save money on fuel expenses, a company official said, and other big carriers are talking about similar steps, an industry source said on Friday.
Separately, two U.S. senators have asked federal aviation and transportation officials to look into a report that carriers may, in some cases, have cut back on fuel reserves to reduce expenses, possibly violating safety regulations.
Carriers are scrambling to meet demand and maintain their profit momentum from a successful summer travel season amid continued pressure from high energy prices.
Crude oil was up nearly $1 on Friday on the New York Mercantile Exchange to $96.40 per barrel. Every $1 increase in crude oil prices cost airlines $470 million, industry statistics show.
As energy prices have soared, airlines have sagged on Wall Street. Industry shares collectively were down again on Friday and were off 11 percent for the week.
Jake Brace, United's chief financial officer, told investors this week the company has the option of grounding planes if flying them becomes too costly or if demand wanes.
"We have a lot of flexibility in our fleet in that we have a little over 100 unencumbered aircraft that we could ground, sell, whatever we needed to if the demand environment were such that it didn't make sense to fly those planes," Brace said.
An industry insider familiar with planning at the biggest carriers said on Friday that other airlines are also talking about idling aircraft, if fuel prices continue to skyrocket. The insider asked not to be identified.
Another industry expert said bigger airlines like United, American Airlines (AMR.N), and Northwest Airlines (NWA.N) historically have had flexibility with their aircraft.
"They all have significant parts of their fleet they can park cheaply," said airline consultant Michael Boyd.
Carriers have raised fares to offset higher costs, and a report this week also suggested airlines may have underfueled planes to reduce weight, making them less expensive to fly.
Sens Frank Lautenberg and Robert Menendez, both New Jersey Democrats, sought investigations into a report by WABC-TV in New York that more planes over a six-month period this year landed at Newark airport with minimum fuel than in a similar time frame two years ago. In some cases this year, pilots declared fuel emergencies for immediate clearance to land, the report said.
"Operating under these conditions regularly can put passengers at risk, especially if multiple landing attempts must be made," Lautenberg wrote to Transportation Department Inspector General Calvin Scovel.
Menendez asked the FAA to investigate and issue interim guidelines to ensure there is a greater margin for error. Current rules require passenger aircraft have enough extra fuel to reach a second airport, if necessary, and fly at least 30 minutes beyond that.
The FAA said it does not regularly track landing requests based on low fuel but would investigate.
"We don't have any indication right now that airlines are flying planes with less than the required amount of fuel," FAA spokeswoman Laura Brown said.
Major carriers, represented by their trade group, the Air Transport Association, did not address the matter directly in a statement but said the FAA regulations are adequate.
11-10-2007, 02:43 AM
#2
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Key word being "COULD". I hope I'm not deluding myself, but it seems the Pakistan thing may be close to resolved, and from what I heard, oil prices should stabilize by spring at around 80-85 per barrel. Now as far as our weak dollar, who knows, but parking planes and furloughs cost money too, when it's very temporary. Hopefulle the Airlines will "ride out" the current oil crisis, and let's hope we don't see 150-200 per barrel.
Anyone else have some insight about the possible "parking" of A/C?
11-11-2007, 09:03 PM
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Unless you are traveling in a Toyota Prius with 4 people, as gas goes up and if the airlines passed on 100% of the cost, ticket/drive cost favors flying.
The VLJ trade groups will also have a hard time with their powerpoint slides. They have been touting a pretty good case to gain airline pax. As jet fuel goes up they will find it harder to sell the business models.
For the first time, the industry might have to shrink to profitability. Never worked before because someone else was always adding. Now that most of the labor contracts have been gutted they will have to work together and control supply and cause a net reduction in seats.
The VLJ trade groups will also have a hard time with their powerpoint slides. They have been touting a pretty good case to gain airline pax. As jet fuel goes up they will find it harder to sell the business models.
For the first time, the industry might have to shrink to profitability. Never worked before because someone else was always adding. Now that most of the labor contracts have been gutted they will have to work together and control supply and cause a net reduction in seats.
11-12-2007, 03:04 PM
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I thought that was the whole gist of the article.
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