CRISIS IN THE PERSIAN GULF : Airlines Insist Fuel Costs Justify Fare Hikes

The nation’s airline industry, fearful of being accused of price gouging, defended its latest round of price increases as justified Thursday, arguing that it cannot afford to absorb the sharp increases in jet-fuel prices that followed the Iraqi invasion of Kuwait.

In a news conference intended to preempt public criticism, Air Transportation Assn. President Robert J. Aaronson pleaded that airlines are feeling the same “extreme frustration” as other consumers.

“Jet-fuel prices have gone through the roof,” he said. “If you’ve bought gas for your car in the past couple days, you are experiencing the same thing we are.”

His remarks came as Delta Air Lines and United Airlines followed American Airlines and America West in raising fares--or imposing temporary surcharges--of as much as 10% to help meet rising fuel costs.

“Within hours of the Iraqi invasion of Kuwait, refineries hiked the price airlines must pay for jet fuel,” said Aaronson, whose organization is a trade group. Alluding to charges that some oil companies were raising prices speculatively, he insisted: “There is nothing speculative about our higher costs.”

The increases herald what some analysts fear will be an intensifying inflation threat in the United States as a result of rising oil prices.

If the higher oil prices persist, “it would stoke up inflation and send the economy into a recession--no question about that,” said Joel A. Popkin, a Washington-based inflation expert.

But Popkin added that it may be difficult for the airlines to sustain the higher prices, because oil prices have stabilized somewhat in the past two days and the carriers are experiencing a slump in demand.

“These increases seem to mirror the early stages of the oil markets’ reaction to the Iraqi invasion and still don’t reflect the fact that crude oil prices have backed away from those initial crude oil price highs,” Popkin said.

But Aaronson said airlines have been losing money for several months and cannot absorb the additional costs. They have no fuel inventories, he explained, so the higher oil prices affect them immediately.

Air carriers “have been losing a lot of money in the last week by flying people on fares that were based on lower fuel costs,” Aaronson said. He argued that the companies cannot afford to wait to raise their prices.

Major airlines have announced price increases that range from 5% to 10%. Most of the higher fares will go into effect today, but some will be effective Wednesday.

America West, Northwest, Midway and Pan Am have announced price increases of 10%. Delta, American, United and USAir will raise fares by 5.3%. American had originally announced a 10% increase, later scaling back its increase.

Some airlines have chosen to impose a flat surcharge instead of a percentage hike. The Trump Shuttle will go up by $10 per trip, and Trans World Airlines will charge an additional $20.

Northwest initially announced a surcharge of $8 a ticket but later decided that the surcharge was “confusing” to its passengers and replaced it with the percentage increase.

Of the major carriers, only Continental and Eastern had not acted by late Thursday. However, Eastern said it was reviewing a possible fare increase but would not make an announcement until today at the earliest.

Meanwhile, Burlington Air Express said Thursday that it will impose a fuel surcharge for all shipments in the United States and Canada, a step that has not been taken by its major competitors in the air freight business.

Burlington, based in Irvine, said the six-cents-a-pound surcharge--which amounts to slightly under 6% on an average price of $1.10 to $1.12 per pound--would take effect Aug. 20 and would be “reviewed on a continuing basis.”

Other air freight companies, including Federal Express, United Parcel Service, and DHL Worldwide Express, said Thursday that they had no current plans for surcharges. But Burlington said rising jet fuel prices “had left it no choice but to pass on these extraordinary cost increases to its customers.”

Aaronson of the Air Transportation Assn. assured customers that higher prices for airline passengers will not apply to purchases in which tickets have already been issued. “Many airlines have already sold 30% to 40% of their seats for the next 60 days at prices based on lower fuel costs,” Aaronson said. “We expect that they will honor those tickets.”

He insisted that the modest decline in oil prices on Wednesday and Thursday does not substantially improve the situation for the airlines. “Let’s say (the price of oil) goes down to $25 or $24 a barrel,” he said. “That is still a very significant increase for us” from the $18-a-barrel price level that prevailed last month.

Nonetheless, he predicted that the higher air fares are not necessarily here to stay. “If it became clear to the airlines that they were not facing the kinds of cost increases that we have literally experienced in the last several days,” he said, “I’m sure the airlines would reconsider the kind of increased charges that they have announced.”

Popkin, for one, agreed. “Travel, like the rest of the economy, is pretty weak right now,” he said. “It will be hard to make the increases stick.”

Times staff writer Jonathan Weber in Orange County contributed to this story.