Airlines again call for U.S. to tap oil reserves

`Someone is making extraordinary profits,' executives say in letter

August 26, 2004|By BLOOMBERG NEWS

WASHINGTON - Top executives at American Airlines, United Airlines and 16 other carriers called on Congress to hold hearings on "soaring" fuel prices and said the government should consider releasing oil from the Strategic Petroleum Reserve to boost supply.

"We are convinced that the only thing that will stop the wild increase in prices is fear by the speculators that the U.S. government is ready to step in," the chief executives wrote in a letter to Senate and House committees.

The airlines estimate that they'll pay $6 billion more than last year for fuel at today's prices, even though the cost of production hasn't changed "measurably," they said in the letter. "Somewhere in the distribution process, someone is making extraordinary profits."

$23.2 billion in losses

The U.S. airline industry lost a combined $23.2 billion in the three years that ended in 2003, and it's unprofitable so far this year.

The price of jet fuel, which typically makes up 10 percent to 15 percent of a carrier's costs, has risen 45 percent in the past year, based on fuel for immediate delivery in New York.

The Bush administration is so far resisting demands from airlines and truckers to uncork the strategic reserve as a way to boost the supply of crude oil, the raw material for jet fuel.

White House spokesman Scott McClellan said Friday that the reserve shouldn't be used to "manipulate prices for political purposes" and repeated that only a serious supply disruption justifies using government oil.

Signatures on the letter included the heads of the three largest U.S. carriers, American's Gerard J. Arpey, United's Glenn F. Tilton and Delta Air Lines Inc.'s Gerald Grinstein. American is a unit of AMR Corp. and United, which is operating under bankruptcy protection, is part of UAL Corp.

Delta officials have said their company may file for protection from creditors if they can't reduce costs enough. Delta's stock has dropped 64 percent this year, and AMR's is down 27 percent.

Demand at 3-year high

U.S. jet-fuel demand soared 6.9 percent last week to a three-year high of 1.873 million barrels a day, the Energy Department said in a report yesterday. Demand has averaged 1.605 million barrels this year, up 2.6 percent from a year earlier.

The letter was sent to the Senate Commerce, Science and Transportation Committee and House Transportation and Infrastructure Committee.

The strategic reserve was created in the 1970s in a bid to make the U.S. less dependent on foreign reserves after the Arab oil embargo.

Airlines have been asking since early 2003 for the Bush administration to either release oil from the reserve or stop filling it, the Air Transport Association, the trade group for major U.S. carriers, has said.

The $6 billion estimate is based on fuel prices staying at $45 for a year, compared with last year's price of $31, said John P. Heimlich, economist for the Air Transport Association, which released the letter.

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