Troubled US airlines face more turbulence from sky-high oil prices

Troubled US airline companies, already financially shaken by fierce competition from low-cost carriers and steep labor costs, are now facing more turbulence from soaring fuel costs, which even their European rivals are finding less rocky.

The spectacular spike in the price of jet fuel, up 46 percent in a year, aggravated the plight of Delta Air Lines and Northwest Airlines, two US carriers that filed for Chapter 11 bankruptcy protection on Wednesday.

That brought to four the number of US carriers, along with United Airlines and US Airways, that are mired in bankruptcy reorganization.

American carriers are not alone in feeling the effects of skyrocketing oil prices, which hit a record high of 70.85 dollars a barrel on August 30.

European airlines like Air France-KLM reported fuel costs soared 32 percent in the first quarter of this year to 809 million euros (980 million dollars). But the Europeans are managing the price jolt better than US carriers due to a strong euro, which has helped to ease the impact of fuel costs, priced in dollars.

But the fiscal debacle of traditional air transportation in the United States goes deeper than recent fuel hikes. It is rooted in the industry trends of the 1990s when that airlines agreed to union demands for higher wages and pension benefits, which the carriers now say has undermined their competitiveness.

Employee costs represent about 38 percent of a US carrier's total expenditures, compared with 30 percent in Europe and 20 percent in Asia, according to the International Air Transport Association (IATA).

The past decade also brought the industry new rivals primarily in the domestic market. Low-cost airline operators such as Southwest, a pioneer in cheap fares, forced down the price of airline tickets in general.

Air fares have been slashed by a third in ten years, according to a study by global credit insurer Euler Hermes published Tuesday.

The fare war triggered by budget airlines has shrunk the revenue of traditional airlines, which historically have focused on their domestic routes.

The low-cost airlines have continued to grab more market share, growing from less than four percent of the domestic market in 1991 to some 22 percent this year.

While being squeezed on their domestic routes, the traditional carriers also suffered on their overseas flights as air travel declined after the September 11 attacks using hijacked planes in New York and Washington four years ago.

The US carriers accumulated a loss of 32 billion dollars between 2001 and 2004, feeling the brunt of the global airline industry's total loss of 36 billion dollars in that period.

While the European airlines are counting on breaking even in 2005, North American carriers expect to plunge eight billion dollars into the red this year, according to IATA.

"Oil is going to accelerate the changes in the American airline industry," predicted a European airline executive.

Once the traditional airlines resolve issues over salary costs and clean up their debts, they need to revise the organization of their network and focus more on international travel, especially between main airport destinations, the executive said.

The new environment for the US airline industry "will inevitably lead to consolidation, between two or three major players," he said.