Airline fuel bills today are anything but peanuts

To fly someone from New York to Los Angeles and back, airlines spend close to US$330 these days - just on fuel.

That is a 48 per cent increase from last year, and the main reason vacationers face record costs to fly this summer. To offset their single biggest expense, airlines have hiked fares seven times this year and raised fees for checking bags and other services.

This has only added to the frustration of most casual fliers who see US$59 fares advertised but are quoted prices well above US$300 when they actually try to book. Americans' expectations of a cheap vacation are being destroyed by the reality of US$100-a-barrel oil.

"The passenger has to understand that the airline industry in the United States is not meant to be a low-cost mass transit system. The airlines are in business to be profitable," says airline analyst Robert Herbst.

A decade ago, fuel accounted for about 15 per cent of airline operating expenses. Five years ago, it was 29 per cent. Today, it is 35 per cent.

During the first three months of 2011, the airlines spent US$8.7 billion on fuel, 31 per cent more than last year. In the current quarter, jet fuel expenses are even higher.

US airlines burn an average of 22 gallons of fuel for every 1,000 miles each passenger flies. At US$3.03 a gallon, airlines are currently spending US$330 per passenger just on fuel for a 4,950-mile transcontinental round-trip. Some fliers might have paid less than that for their ticket, while others could have spent more than US$2,000.

Other expenses

The industry's remaining expenses break down this way:

Salaries and benefits account for 28 per cent. Ten years ago, it was the biggest expense at 39 per cent. But several major airlines filed for bankruptcy and that allowed them to renegotiate labour contracts;

Aircraft maintenance, airport landing fees, and travel agency commissions account for 18 per cent;

Aircraft lease payments, food, and drinks and in-flight entertainment account for five per cent. And that is even with most airlines no longer serving peanuts;

Another 14 per cent goes to miscellaneous costs, such as updating reservation systems and marketing partnerships with other airlines.

The price of a domestic round-trip ticket this summer is forecast to be US$430, on average.

That includes taxes but excludes baggage fees and other services.

While airfares should break nominal records, they are not nearly as high as they were a generation ago once inflation is factored in.

The average ticket in 1978, the year airlines were deregulated, was almost US$650 in today's dollars. Deregulation created more competition, which ultimately drove down prices for passengers.

With oil about US$100 a barrel, fuel has become the expense that preoccupies airline executives more than any other. It is the reason airlines started charging for checked baggage in 2008 and why they have raised fares more than 10 per cent this year.

Baggage fees - typically US$50 per bag, round-trip - have added more to the cost of flying since 2008 than fare increases have.

Despite the rising fares and fees, demand for air travel is rising. The airlines expect 206 million passengers this summer, a 1.5 per cent increase from last year, according to the Air Transport Association.

That suggests airfares aren't likely to decline soon, despite a drop in oil prices this month. The airlines lost a combined US$1 billion during the first quarter and hope to recoup that with higher ticket prices.

- AP