AMERICAS: More fuel price troubles

Airlines that have used fare hikes as buffers against $80-per- barrel oil prices could see that protection erode as their ability to raise fares grows weaker, according to ratings agency Standard & Poor’s (S&P). In a recent report S&P said: “Even though carriers were able to pass through higher fuel costs by raising fares in […]


Airlines that have used fare hikes as buffers against $80-per- barrel oil prices could see that protection erode as their ability to raise fares grows weaker, according to ratings agency Standard & Poor’s (S&P).

In a recent report S&P said: “Even though carriers were able to pass through higher fuel costs by raising fares in the domestic market during 2005 and 2006 — and can still do so in many international markets – pricing flexibility has been squeezed.”

S&P said a strong economy and bankrupt airlines pulling capacity out of the market helped airlines raise fares during the stated two-year timeframe, but“that process has largely run its course.”

It also noted that while carriers like Qantas and Lufthansa have robust finances and are somewhat favorably hedged based on the percentages of fuel needs covered and the price levels at which the hedges are set, S&P said weaker carriers, “which includes almost all U.S. airlines,” are limited in creating favorable hedges.