American cuts 15 flights from 2 largest cities

10/1/2005

AMR Corp.'s American Airlines, the world's biggest carrier, is cutting 15 round-trip flights from its two largest cities because closings of hurricane-damaged refineries have hiked jet-fuel prices to record levels.

Delta Air Lines Inc., the third-biggest U.S. carrier, said it has canceled some flights, and No. 5 Continental Airlines Inc. said it may suspend some next month. American will suspend flights from Chicago and Dallas-Fort Worth from Oct. 5 through Oct. 29. American's cancellations involve 12 cities with multiple daily flights.

Refinery outages and tightened supply are boosting prices for jet fuel, which is refined from crude oil. The price of oil, plus the price paid for refining, pushed the cost of a barrel of jet fuel on the Gulf Coast to $124.99, or $2.98 a gallon, on Sept. 28, according to American. Fuel is the second-largest expense for airlines, behind labor.

"I expect more of the network airlines to do the same," Alan Sbarra of San Francisco-based Roach & Sbarra, said in an interview. "Now that fuel is an issue, and other economics of the airline industry are pretty difficult, a lot of marginal flights are hard to justify. It's a prudent trimming of marginal routes."

Brian Schwartz, a spokesman for the Toledo-Lucas County Port Authority, speculated yesterday that high fuel costs could very well have played a part in the recent announcement by TransMeridian Airlines that it was ending all flights to and from Toledo Express Airport.

"I know airlines are struggling with the high cost of fuel right now, and fares have not gone up correspondingly," he said.

Paul Toth, the airport's director, said there have been no cancellations of flights by airlines other than TransMeridian but the escalating prices have officials concerned. The airport services more than 500,000 passengers each year.

"It's scaring us that gas is now $2.70 a gallon where two years ago it was 88 cents," he said. "It's about as uncertain in the market as it can be. Long-term in aviation is two days right now."

American also said it is dropping daily service between Chicago and Nagoya, Japan, at the end of October. Passenger numbers on the flight begun in April had been building, but higher fuel prices made it "financially untenable" to continue, said spokesman Tim Wagner.

Rising jet-fuel prices prompted Northwest Airlines Corp., the No. 4 U.S. airline, to say earlier this month it will stop daily, nonstop flights between Tokyo and New York. It filed for bankruptcy protection Sept. 14.

American is canceling two daily round trips between Dallas-Fort Worth and Austin, Texas, and one daily round trip each between Dallas and Atlanta, Houston, Denver, Washington, Kansas City, Chicago, Minneapolis-St. Paul, Tulsa, El Paso, and Newark. American will also cancel daily round trips between Chicago and Houston and Chicago and Minneapolis-St. Paul.

"This is a tough decision that we never wanted to have to make," Executive Vice President Dan Garton said. "Jet-fuel prices have risen faster than crude-oil prices for the last year."

Houston-based Continental is reviewing its October schedule and "anticipates it may suspend some flights in select markets," said spokesman Martin DeLeon. Continental yesterday raised most fares $20 round trip to offset rising fuel costs, he said.

Delta, which filed for bankruptcy, has canceled some flights and adjusted some operations to conserve fuel, said spokesman Benet Wilson. A few flights were affected by the adjustments to conserve fuel, Ms. Wilson said. Delta matched Continental on fare increases, she said.

American rose 42 cents, or 3.9 percent, to $11.17 at 2:53 p.m. in New York Stock Exchange composite trading. Continental rose 29 cents, or 3.1 percent, to $9.71. Delta shares fell 3 cents to 76 cents in over-the-counter trading.

U.S. airlines have had combined losses of more than $38.2 billion since 2000, in part because of rising jet-fuel prices. The immediate price of a gallon of jet fuel in New York harbor has more than doubled to $2.44 a gallon this year. It traded at a record $2.49 yesterday.

About 3.16 million barrels a day of refining capacity, or almost 19 percent of the U.S. total, is idle because of damage or shutdowns related to hurricanes that hit Texas, Louisiana, and Mississippi, according to information from the refiners.

American didn't say how much fuel the flight cancellations will save or when it may face a fuel shortage because of the refinery outages.

The airline said it and other carriers are turning to refineries outside the U.S. to secure fuel supplies. Each one cent increase in the price of a gallon of jet fuel costs American $30 million a year.

The higher fuel costs mean American needs "to do everything possible" to work with employees to lower costs, the airline said in a message to workers this week. American and its American Eagle regional airline make more than 3,800 daily flights.

Damage to the power grid of Entergy Corp., which provides power for seven affected refineries, may delay work for as much as a month. New Orleans-based Entergy today said it expected to restore power this weekend to Exxon Mobil Corp.'s Beaumont, Texas, refinery.

Two U.S. senators yesterday called for the U.S. to create an emergency fuel reserve with 40 million barrels of gasoline and 7.5 million barrels of jet fuel to ease prices during shortages like those caused by the hurricanes.