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PUBLISHED: 4:36 PM on Wednesday, July 2, 2008
Report: Airlines facing turbulent times
Juneau identified as 1 of 100 markets likely to suffer from skyrocketing fuel costs
JUNEAU - Imagine what Alaska's capital city would be like without air transportation connecting it to the rest of the world. No flights in - no flights out. One man lobbying in Washington D.C. fears just that as more airlines announce cutbacks each day.

Juneau was identified as one of 100 markets likely to lose airline service due to skyrocketing aviation fuel prices, according to a national analysis by the Business Travel Coalition (BTC), a Washington D.C.-based group advocating consumer influence over industry and government policy.


The report released June 13, "Beyond the Airlines $2 Can of Coke: Catastrophic impact on the U.S. Economy from Oil-price Trauma in the Airline Industry," predicts that nearly a quarter of major airlines could be financially crippled - or forced into bankruptcy - by $140 per barrel oil prices by the end of 2008.

BTC founder and Chairman Kevin Mitchell is trying to get government officials involved early to prevent a worst-case scenario of major airlines going bust.

During an interview with the CCW from Washington D.C. last Thursday, where he was testifying before Congress, Mitchell said Juneau is a prime example of a mid-size market that will lose airline service if oil remains above $130 per barrel.

"Juneau, in many cases, is Exhibit-A for mid-size communities," he said. "The media focuses on Fortune 500 (companies) but 75 percent of revenue comes from small- to mid-size enterprises which often are located in mid-size communities.

"We have a critical national infrastructure that is under the threat of collapsing. The airline industry stimulates so much economic activity - much more than many people currently understand."

The side affects implicated by the report include a decrease in tourism, massive job losses, shrinking tax revenues, disruption in imported and exported goods, and an overall decline in national competitiveness.

'Green' skies

Alaskan Airlines spokeswoman Marianne Lindsey said last week the airline currently has no intentions of making changes to Alaska flight schedules "at this time."

The airline has cut back flights in hubs outside Alaska, while also implementing several fee increases for checking a second bag for flights leaving Alaska, booking fees and connecting flights, among others.

Alaska Airlines and Horizon Air are owned by Seattle-based Alaska Air Group.

Fee hikes are becoming a national trend. American United and U.S. Airlines announced last week they would be charging passengers for every bag stowed on board.

"The biggest change the industry is seeing right now in changes in baggage (fees)," Lindsey said. "It's heavy and you need more fuel to fly it. If you want you can take the kitchen sink with you, but you've got to pay for it."

One way Alaskan Airlines is looking at offsetting costs is by replacing its outdated aircraft with more fuel-efficient models.

"Our goal is to do those things internally and not impact the customer with the exception of additional fees for baggage and things like that," Lindsey said.

The airline is retiring its gas-guzzling MD-80 models for newer Boeing 737-900s, which consume about 15 percent less fuel per hour. The savings, reported Alaskan Airlines, is about 100,000 gallons of fuel annually per aircraft. Currently there aren't any MD-80 models flying in Alaska and the retirement date for the older models recently was pushed up four months to August 2008.

"Reducing fuel consumption has been a key focus at Alaska Airlines and Horizon Air for many years," said Bill Ayer, chief executive officer of Alaska Air Group.

By January, Alaskan Airlines will be operating 75 next generation 737s, about 64 percent of the 116-aircraft fleet.

But even by introducing a more efficient fleet and hedging fuel costs, it is unlikely Alaska Airlines will escape 2008 without taking heavy financial losses.

Moody's Investor Service and Standard & Poors downgraded Alaska Airlines' 2008 outlook from stable to negative in late May.

Nine of the 10 major airlines, including Alaskan Airlines, are on a "credit watch" list with implications of "severe financial damage" due to rising fuel costs, according to S&P.

Airlines are expected to spend about $25 billion more on fuel this year than in 2007, according to the Wall Street Journal. The BTC projects service fee increases among all the airlines, such as additional baggage costs, will amount to $3 billion at the most.

"Consumers aren't the same as a few years ago, they're paying more at the pump, at the supermarket, and there is a fallout in demand and it's unlikely (airlines) can even raise $3 billion this year," Mitchell said.

Alaskan Airlines raised airfares several months ago and it could just be a matter of time until more increases are announced. As of Sunday, the lowest round trip ticket from Juneau to Seattle (departing Friday and returning Sunday) booked a month in advance cost nearly $500. A weekend visit to Los Angeles was more than $725. And a trip to Hawaii: about $1,000 and up.

Flight canceled

Anchorage could face even harder times in the months ahead.

United Airlines, the nation's second-largest carrier, announced last month that flights in and out of Anchorage would be discontinued in September. The cutback is part of the Chicago-based company's plan to reduce domestic flights by 9 percent and its fleet by 30 aircraft, reported the Associated Press. Anchorage was the only hub United Airlines is dropping altogether.

According to the AP, dropping the hub will eliminate 35 jobs in Anchorage. Last week the AP reported United would let go of 950 pilots, more than 14 percent, along with cutting 1,600 salaried positions nation-wide.

Atlanta-based Delta Air Lines announced June 19 it will cut domestic flights 13 percent during the second half of 2008, a three percent increase over its March prediction.

Mitchell said one of his greatest concerns is what happens after flight schedules are liquidated and employees are laid off. The remaining airlines will be unable to carry the load left behind, he said.

A single airline failure could result in the loss of up to 75,000 jobs and payroll loses upwards of $6.7 billion, according to the BTC.

"Failure of one large U.S. airline would disrupt the travel of 200,000 to 300,000 passengers per day and thousands of tons of goods," the report states. "The remaining ... airlines would not be able to absorb much of those volumes. Failure of multiple airlines would paralyze the country."

Five smaller airlines - Aloha, ATA, Champion, Eos and Skybus - have ceased operations since March. ATA's shutdown stranded thousands of Hawaiian tourists, forcing the Hawaii Tourism Authority to spend about $500,000 on return fares for approximately 2,200 passengers holding worthless airline tickets.

Shari Sjogren, a 25-year-old drug and alcohol counselor from Sitka, discovered on April 1 while trying to fly from Sitka to Hawaii that her Aloha Airlines ticket wasn't "real."

"The day I showed up at the airport I was told I didn't have a real ticket," she said. "It was real to my bank account."

Sjogren called her bank to have the money refunded and had to purchase two new tickets from a different airline the same day.

The Travel Industry Association estimated that total U.S. spending on airline travel (including cruise ships) in 2006 exceeded $700 billion, with more than half of those passengers traveling for leisure. According to the Department of Transportation, two of the top destinations were Hawaii and Alaska.

Turbulence up ahead

As big oil producers hold airlines hostage at the pump, Mitchell fears it's just a matter of time until airlines turn to the government for help.

"If lawmakers wake up and see that one or two of these major carriers are heading into Chapter 11 (bankruptcy), the ATI will march to Congress for a bail out. Members of Congress ... will have no way to assess the crisis and they'll write a check. Taxpayers will write a $10 billion check and it won't be the best use of this money. We have to start ... planning what we do."

Problem is: No one knows exactly what to do. But Mitchell insists increasing service fees and airfare won't even get air carriers through winter.

"The number one thing I'm trying to do with this outreach is to get consumers to write to their members of Congress," Mitchell said. "Time is running out here. We're fortunate because it's an election year and (consumers') letters are more leveraged than other times. We must get congress up to speed about the problem."

He said consumers should ask elected leaders to start meeting and look for a solution now before the crisis enters deeper into "uncharted territory." The New York Times reported on Saturday that 10 percent of domestic flights nation-wide will likely be cut by Labor Day.

What is unlikely, according to industry experts, is the price of fuel dropping below $130 per barrel.

"If the $130-$140 (per barrel) is permanent, which the curve suggests, we need to totally rethink the industry model," Mitchell said.

To read a copy of the report, "Beyond the Airlines' $2 Can of Coke," visit www.businesstravelcoalition.com. To learn more about supporting regional airline services visit www.savemyairport.com.

Charles Westmoreland can be reached at editor@capweek.com.


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