The Soaring Cost of Fuel, and its Impact - American Airlines Explains...

It is no longer news that airlines are trying to cope with inflated fuel costs that are running several airlines into bankruptcy, and causing an immense financial burden for those that continue to operate through these pricey fuel times. American Airlines sent out a statement that puts a lot of these expenses into perspective, and I thought it could make for an interesting read. In no way does this mean I condone charging for not just the second bag, but for the first checked in piece of luggage on many of its routes.

As passengers, many of the costs are absorbed in ticket prices, fuel surcharges, and a whole host of other fees. So it's intriguing to see an airline come out with the plain facts and show where they are at, and try and find some explanation for passengers who are often feeling deceived by all the add on fees that seem only barely visible in the fine print, and are all too real when booking a ticket. Here are some of the facts American Airlines put forth in a recent statement:

• A $10 increase in the price per barrel of oil costs American $800 million in extra expenses per year.
• Fuel was $129 per barrel on May 20, 2008 – in effect, American Airlines is incurring nearly $3 billion more in annual expenses since the start of the year. Further, since March, when crude averaged about $105, the price has increased by almost $25 per barrel, meaning about $1.9 billion more in annual expenses in under 2 months.
• Fuel averaged $72 a barrel in 2007 - $4.6 billion less in annual expenses, if the current fuel price trend stays at about $130 per barrel.
• “The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy,” said AMR Chairman and CEO Gerard Arpey. “We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future.”
• American Airlines domestic capacity will be reduced in the fourth quarter of 2008 by 11 to 12 percent, compared to the same period in 2007. This will mean job losses and possible facility closures.
• Since American Airlines released its first quarter 2008 financial results on April 16, American has participated in or led 15 fare increases, 14 of which were at least partially successful. Most recently American Airlines introduced a $15 fee for the first checked bag where they cited the increasing costs of transporting checked baggage as a reason to do so (certain exceptions to the $15 fee apply.
• American Airlines also increased its fees for certain other services, including reservation service fees and the carriage of pets to name a few.

Given the current air travel climate, this is likely not the end of increased fees.