Airline fuel costs force fares higher
NEW YORK -- To fly someone from New York to Los Angeles and back, airlines spend close to $330 these days -- just on fuel.
That's a 48 percent 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 percent of airline operating expenses. Five years ago, it was 29 percent. Today, it's 35 percent.
During the first three months of 2011, the airlines spent $8.7 billion on fuel, 31 percent more than last year. In the current quarter, jet fuel expenses are even higher.
U.S. airlines burn an average of 22 gallons of fuel for every 1,000 miles each passenger flies. At $3.03 a gallon, airlines are spending $330 per passenger just on fuel for a 4,950-mile 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 percent. Ten years ago, it was the biggest expense at 39 percent. But several major airlines filed for bankruptcy and that allowed them to renegotiate labor contracts.
--Aircraft maintenance, airport landing fees and travel agency commissions account for 18 percent.
--Aircraft lease payments, food and drinks and in-flight entertainment account for 5 percent. And that's even with most airlines no longer serving peanuts.
--Another 14 percent 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 percent this year.
Baggage fees, typically $50 per bag per round-trip, have added more to the cost of flying since 2008 than fare increases have.
Last week, both Delta Air Lines Inc. and United Continental Holdings Inc. announced they were raising fees to check a second bag on flights to Europe. The first bag is still free. Previously, they both charged $50 for a second bag. Now Delta will charge $60 if it's checked online, $75 at the airport. United and Continental are charging $70 to check a second bag.
Delta is also adding a $30 fee for a second bag between the U.S. and most of Latin America. Its previous fee of $150 for overweight bags on flights to Europe will drop to $75.
The two airlines, both of which serve Charleston, say they made the changes to match their European partners.
Despite the rising fares and fees, demand for air travel is rising. The airlines expect 206 million passengers this summer, a 1.5 percent 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.