US airlines warn of collapse under high oil prices

11 July 2008 17:53  [Source: ICIS news]

WASHINGTON (ICIS news)--The US airline industry on Friday urged immediate action by Congress to increase domestic drilling and rein in speculative oil trading or risk seeing the nation’s civil aviation sector collapse under the weight of high fuel prices.

 

James May, president of the Air Transport Association (ATA), warned that recent sharp increases in the price of oil and derivative aviation fuels are “having an extraordinary and dramatic impact on our aviation industry”.

 

He said that by year end US airlines will have laid off 30,000 employees and cut service entirely to about 100 communities because of steadily increasing fuel costs.

 

Speaking at a press conference, he said that more airlines are close to collapse, noting that eight US air carriers have already folded, two are in bankruptcy proceedings and two more are on the brink of bankruptcy.

 

“Even the major airlines are in trouble,” May said.  He declined to confirm other predictions that two or more major US carriers could fold later this year, but said that “the US airline industry cannot continue to survive with oil at $140/bbl and higher".

 

John Prater, president of the Air Line Pilots Association (ALPA) warned that high oil prices  “will drive the US airline industry into the ground” unless Congress acts to restrain what Prater and May termed rampant and unchecked speculative oil trading.

 

“We are here to declare ‘mayday’ for the US airline industry,” Prater said, using the traditional pilots’ warning of an imminent crash.

 

The ATA and ALPA are among nearly 40 airlines and air industry trade groups in a coalition called Stop Oil Speculation Now (SOSNow), which is calling for immediate congressional action to impose limits on the amount of paper oil trading done by speculators who never take physical possession of oil cargoes.

 

May said that the group strongly favours increased US domestic drilling for oil and natural gas along with development of clean coal and alternative energy resources such as biomass, wind and solar power.

 

“But in addition to a strong national energy policy that would develop more domestic energy in all of its aspects, we need immediate action by Congress to limit the speculative premium in oil pricing,” May said.  He said estimates put the speculative premium at around $20-60/bbl.

 

He said Congress must take action to impose further speculative trading controls - such as strict position limits on energy commodities and full reporting of all trades by all traders - before the federal legislature goes into recess for the month of August.

 

He warned that if Congress fails to act this month and the high aviation fuel crisis continues into the third and fourth quarters this year, “there will be very serious consequences for our airline industry”.

 

May voiced backing of the SOSNow coalition for legislation introduced this week, S-3248, the Commodity Speculation Reform Act, by Senator Joseph Lieberman (Independent-Connecticut).

 

($1 = €.63)

 

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