And That Means Customers Will Have To Pay

As the major US airlines prepare for late-summer capacity cuts they hope will allow higher fares, air line executives and industry analysts are conceding there's no guarantee the adjustments being made will be enough to cover rising fuel costs.

The Dallas Morning News reports American Airlines CEO Gerard Arpey told an industry conference last week that a slumping economy makes raising fares difficult, but, "...if we are going to have an airline business, and I am pretty sure we are, our customers must ultimately compensate us for the costs we incur flying them around the United States and the world."

Analyst Ray Neidl projected earlier this year that airline fares would have to rise 20 percent to cover soaring fuel costs. Now, he feels he aimed low. "My feeling is with oil up over 82 percent for the past six months, fares have to go up even more than 20 percent."

In order to get there, US airlines have announced cuts which, if added up, would equal an entire airline with as many seats as AirTran and Alaska Airlines, the 9th and 10th largest US airlines, combined. Of the ten largest US airlines, only Southwest, which buys its fuel on futures contracts, says it will expand this year.

The Air Transport Association projects US airlines will spend $61 billion on jet fuel this year, up almost 49 percent from 2007.

Can airlines ever hope to ratchet up fares to the point where they cover fuel costs and stop the financial bleeding? Neidl says yes, but it will take time. "...At the end of the day, the consumer is used to flying. Big price increases aren't outrageous, considering the cost of everything else going up led by fuel costs. They will adjust over time."

That still sounds rather ominous, doesn't it?

FMI: www.aa.com