Airlines concerned over oil price rise

The 25 per cent rise in oil prices over the past month has sent shivers through the airline industry as it struggles to cope with the ongoing depressed cargo and passenger traffic.

The CEOs of both AMR, parent of American Airlines and Southwest Airlines said market fundamentals – including a glut of crude oil on the world market – don't support prices as high as US$62 a barrel, a six-month high.

But both American's Gerard Arpey and Southwest's Gary Kelly separately highlighted that current oil prices are not being driven by market fundamentals, citing among other factors the fact that there is an unusually large supply of oil in the world currently – the result of a 7.6 per cent drop in global demand from this time a year ago.

Both executives were emphatic that in this current environment carriers would be unable to withstand another run-up to US$147 a barrel, where oil peaked last July before rapidly plummeting to a low around US$33 a barrel in February.