=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2004/10/08/f= inancial1647EDT0687.DTL --------------------------------------------------------------------- Friday, October 8, 2004 (AP) Airlines hike fares, brace for turbulence as oil price soars LAURENCE FROST, AP Business Writer (10-08) 16:15 PDT PARIS (AP) -- Airlines the world over are raising fares to offset rising oil prices th= at threaten to choke off a gradual recovery in air travel and pile more woes on struggling carriers. British Airways PLC became the latest airline to increase prices on Frid= ay after AMR Corp.'s American Airlines raised one-way domestic flights by $5 earlier this week. Several other U.S. carriers, including UAL Corp.'s United Airlines, Continental Airlines Inc., Northwest Airlines and Delta Air Lines matched American's fare increase. BA said it was adding $36 to the price of a long-haul round trip as the price of a barrel of light sweet crude soared over the $53 mark in New York on Friday. Fuel accounts for about 14 percent of average airline expenses. American said it expects to spend about $1 billion more for fuel in 2004 than it did in 2003. The latest round of fare hikes could dampen demand for air travel, industry watchers warn. Air France and the German airline Lufthansa are among carriers that have scaled back their short-term growth forecasts, reflecting expectations of muted demand. If a prolonged rise in oil prices triggers a broader global economic slowdown, airlines will suffer more as nonessential business travel and ambitious holiday plans are cut back. "Any dampening effect is most likely to come through the impact of higher oil prices on economic growth and consumer sentiment," said Brian Pearce, chief economist at the International Air Transport Association, which represents major airlines. The surge in fuel prices since the start of the year, when oil traded at around $30 -- and when many carriers hoped it would fall -- is just the latest calamity to beset airlines. The global industry has lurched from crisis to crisis since the Sept. 11 terrorist attacks, racking up combined losses of about $30 billion. A tentative recovery in 2002 was reversed the following year by the SARS epidemic, which cut passenger numbers globally and halved them on Asian routes. Early in 2004, with the worst of the SARS fallout behind it, IATA foreca= st a $3 billion profit for its members over the year. But weeks before light sweet crude crossed the $50 line on Sept. 28, the IATA predicted a $4 billion loss for the industry. Analysts say the biggest victims could be airlines that find it difficult to raise fares -- like major carriers in the United States, where overcapacity and cutthroat competition prevent higher fuel costs being passed on to passengers. The U.S. fare hikes are outstripped by the price increases at Air France, Lufthansa, Italy's Alitalia SPA and Swiss International Air Lines Ltd. US Airways and United are both struggling to emerge from bankruptcy. Del= ta has warned it could soon file for Chapter 11 unless costs drop. The dollar's weakness against the euro has helped cushion Europe against the high price of oil -- traded and billed in dollars -- while U.S. carriers' weak credit ratings prevent them from buying long-term oil futures or other instruments to "hedge" against fuel price increases. "They don't have the protection of the feeble dollar, and they broadly speaking don't have hedging," said Andrew Lobbenberg, London-based aviation analyst with ABN Amro. Even airlines that have raised fares are likely see their bottom lines eroded by fuel costs in the last quarter, however, since a large proportion of seats are booked months in advance. ---------------------------------------------------------------------- Copyright 2004 AP