In a curious illustration of how current events make strange bedfellows, the Air Transport Association of America (ATA) has joined Aircraft Owners and Pilots Association (AOPA) and NBAA to fight what they perceive to be causes of record-high oil prices. The two associations are members of the newly formed Stop Oil Speculation Now (S.O.S. Now) campaign, which includes airlines, trucking companies and travel associations. S.O.S. Now is urging consumers to write their legislators and ask them to do something about financial speculation in oil futures markets.
“We believe that the fastest way to get oil prices under control in the short term,” said ATA president and CEO James May, “is by reducing reckless and unfair speculation in the futures markets, while at the same time enacting measures for the mid- and long term to expand oil supplies, enhance efforts to advance alternative and renewable energy sources and improve energy conservation across the board.”
There is no consensus that financial speculation is responsible for high oil prices; demand for oil seems to be a significant culprit, and airlines’ low prices have kept consumer demand for airline travel relatively high. During the first quarter of this year, however, while passenger enplanements climbed by 0.8 percent, the number of flights that departed dropped by 1.9 percent, probably reflecting capacity cuts by some airlines struggling with high fuel prices.
Airline jet-A prices have climbed 251 percent since 2000, according to the ATA, while the U.S. consumer price index advanced 24 percent during the same period. At the same time, the prices airlines charge for their product held steady, and the result is significantly higher expenses and a large number of airline bankruptcies, with further consolidation of remaining carriers expected. In 2000, fuel costs averaged less than 15 percent of airline ticket prices; today, that number is more than 40 percent.
In June, airlines paid an average of $3.91 per gallon for jet-A, not including into-plane fees or taxes and also not taking into account any hedging program expenses. This is up from $2.62 per gallon in January, according to the ATA. Federal taxes on airline fuel are 4.3 cents per gallon, plus 0.1 cent for the leaking underground storage tank trust fund. Essentially, because airline fuel is delivered in such great volumes– U.S. airlines consumed about 1.7 billion gallons of jet-A during May alone–they pay roughly the same price per gallon as FBOs pay before they add taxes and mark up their prices for retail sale.
One can’t help wondering why airlines don’t simply raise their prices to cover the added fuel costs. After all, business aviation operators have done just that, adding fuel surcharges to fractional and charter flights and flight departments absorbing increased costs as owners choose to continue flying corporate.
For airlines, raising prices is not that simple. The public has learned how to access information about ticket prices on the Internet. When prices rise, people fly less, and the airlines are stuck in an economic quagmire that offers no easy solutions.
The ATA’s energy priorities include urging the reining in of the oil speculators, making the strategic energy reserve more available; opposing some countries’ subsidizing fuel prices (autogas is 12 cents per gallon in Venezuela); expanding the distribution network and refinery capacity in the U.S.; developing U.S. energy resources, including oil, gas, coal, nuclear, solar, wind and others; and developing environmentally responsible alternative fuels.
S.O.S. Now’s specific recommendations to Congress include:
• Strengthening regulations weakened by the Enron loophole and other loopholes.
• Limiting the amount of oil that individuals or groups can trade speculatively in the energy futures markets while unfairly driving up prices.
• Requiring reporting by unregulated, secret markets such as the swaps market: all markets should have basic regulations that report the amount of oil people are buying, no matter who they are or where they reside.
• Make foreign traders follow U.S. rules and laws, just like everyone else who does business in the U.S.
Will S.O.S. Now help lower oil prices? It’s hard to say, but the experts’ consensus is that oil prices will remain high this year and next. And nothing will cut oil prices unless demand drops significantly, something that the weak economy might accomplish on its own.