"U.S. airlines to call for U.S. curb on oil speculators"

Tuesday, June 17, 2008

Airlines to call for U.S. curb on oil speculators 
By John Crawley
Reuters 


WASHINGTON - U.S. airlines, battered by skyrocketing fuel prices, will on
Tuesday call for urgent congressional action to stem what they believe is
excessive speculative trading in oil markets.

The focus on commodities trading is the industry's strongest appeal to the
government to address global prices, which have nearly doubled this year and
have decimated industry balance sheets. Carriers are burning through cash
reserves to stay aloft.

James May, president and CEO of the leading trade group for commercial
airlines, the Air Transport Association, will tell Senate lawmakers at a
hearing called to investigate complaints about speculators that 2008 could
be the worst year ever financially for airlines.

"If Congress does not act soon, this country will not have a viable airline
industry," May said in a statement provided to Reuters ahead of the hearing.

May plans to outline what his group calls the importance for "urgent,
critical government oversight" of commodities futures trading.

Airlines and other industries want Congress to change rules regulating
energy commodity futures markets to make trading "fairer and more
transparent," May's group said.

Analysts expect heavy airline losses for the current quarter and full year
on jet fuel prices that have gone from $90 a barrel at the end of 2007 to
$163 - including refining costs - on June 13. Merrill Lynch estimates the
eight biggest domestic carriers alone will lose $5.3 billion this year.

These include American Airlines, a unit of AMR, Delta Air Lines, UAL's
United Airlines, US Airways, Northwest Airlines and other carriers.

Most carriers are churning through cash reserves to help pay for fuel, which
is their highest expense, and some experts predict possible bankruptcies
next year involving the biggest airlines if prices do not retreat.

Airline shares rose on Tuesday, with crude prices easing off Friday's close.

The top U.S. oil market regulator and officials from leading futures
exchanges will also testify at Tuesday's joint Senate hearing.

Many U.S. lawmakers - mostly in the Democratic majority - see excessive
speculation as the main culprit for increased prices. The Bush
administration is looking into speculation, but believes oil price spikes
are being driven by the fundamentals of world supply and demand.

Even if speculation accounts for a fraction of price increases, airlines
would welcome any government relief.

Every $1 increase in the price of a barrel of oil adds $465 million in fuel
expenses, industry figures show. U.S. airlines are on track to pay more than
$61 billion for fuel this year, about $20 billion more than last year.

"How much fluff is in the market because of speculation is anyone's guess,"
said Robert Mann, an airline industry consultant who believes airlines are
in a fix partly of their own making.

He notes that airlines, in most cases, failed to adequately hedge their
long-term fuel purchases and have not invested nearly enough in
more-efficient aircraft.

"At the end of the day they'd be talking about paying spot prices on less
than half their consumption instead of, in some cases, all of it," Mann
said.

Mann also said a reliance on smaller planes in recent years at major
airports and over-scheduling have generated less revenue and worsened
congestion and delays, which wastes enormous amounts of fuel.

 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dcfp/dcboard.php


*****************************************