Airfares Rise With Fuel Costs

Several U.S. airlines Wednesday announced fare increases to offset soaring jet-fuel prices, following Continental Airlines Inc.’s announcement a day earlier to do the same.

Continental raised fares worldwide to counter fuel costs, which have risen 50% from a year earlier on the back of soaring crude-oil prices. The airline also warned of a loss for the second quarter and a “significant loss for 2004 and beyond.”

The Houston-based carrier also said it might have to consider additional furloughs, wage and benefit concessions and reduced pension funding for employees.

United Airlines, which on Wednesday matched Continental’s price increase of $10 each way for flights up to 1,000 miles and $20 each way for flights over 1,000 miles, said high jet-fuel prices were keeping the airline, which is operating under Chapter 11 bankruptcy protection, from reaching profitability.

“If not for fuel prices, I’d be able to say we’d be profitable this quarter,” Glenn Tilton, chief executive of UAL Corp., said at a New York event.

The price for jet fuel jumped 9 cents Wednesday to $1.38 a gallon in the Los Angeles spot market because of an increase in the Nymex heating-oil contract and refiner buying, traders said.

AMR Corp.’s American Airlines, the world’s largest carrier, said it matched the increase in European markets. “We have matched it in some European markets where we compete with Continental, but we are still evaluating the domestic markets,” a company spokesman said.

Delta Air Lines Inc., the No. 3 U.S. carrier, said it also had matched Continental’s increase.

A spokeswoman for Northwest Airlines Corp., the No. 4 U.S. airline, said, “We have selectively matched Continental’s price increase on fares that we offered to compete with low-cost carriers.”

Several airlines tried earlier this year to add fuel surcharges, which failed to stick due to relatively weak demand. “This industry is seemingly incapable of transferring skyrocketing fuel prices to passengers,” Tilton said, hoping that the increases will stick this time around.

Low-cost carrier Southwest Airlines Co. said it could consider raising fares, but JetBlue Airways Corp. said it did not plan to do so.

Wall Street analysts remained optimistic about the performance of low-cost airlines.

“We strongly favor low-fare carriers, most of whom are well-hedged, and all of whom should maintain profitability despite high fuel prices and a weak revenue environment,” Lehman Bros. analyst Gary Chase wrote in a research note.

Jet fuel makes up 12% to 14% of airlines’ operating costs and is their second-biggest operating expense after labor.