ALBUQUERQUE — You thought the security lines at airports were bad. Get ready for your flying experience to likely go from annoying to miserable.



Both Continental and United Airlines announced last week their plans to reduce service and lay-off employees beginning at the end of the summer travel season, indicating that rising fuel prices are putting the U.S. airline industry in a serious crunch. American Airlines announced similar adjustments on May 21.



According to the New York Times, the combined effect of multiple airline reductions since March is 200 fewer aircraft serving the public, or more than 10 percent of the major airlines’ fleet. Airlines are at the same time are raising prices and adding new surcharges and fees. Fares are up 16 percents this year, according to the Times, and the industry’s lobbying group, Air Transport Association, predicts 2.7 million fewer people than last year will fly this summer.



So what does it mean for New Mexico?



To put the announcements in perspective for New Mexicans, these three major airlines combined serve 25 percent of Albuquerque International Sunport travelers, according to charts on the Sunport web site. American and United Airlines hold 10.8 and 9.5 percent of the market share respectively, while Continental only serves 4.8 percent of the local market.



Sunport spokesperson Daniel Jiron said he doesn’t have a good sense yet about what the impact over time will be. He said the cuts won’t go into effect until after the summer travel season, and that the airlines haven’t communicated to the Sunport yet about how New Mexico will be affected. He pointed to a USA Today interactive mapping analysis, though, for insight. USA Today compared last October’s schedules with the schedules currently posted for this coming October, and found that New Mexico overall will see a 3.6 decrease in the number of available seats, and that Albuquerque will see a 2.7 percent decrease in seats.



Jiron said the reason the state overall will have a larger decrease in service is due to Mesa Airlines discontinuing its service between Farmington and Albuquerque. While New Mexico Airlines, which began serving the state in 2007, has picked up some of the slack, there’s still been a negative effect on service. Jiron said Mesa Airlines did not attribute the move to fuel prices, but instead simply wanted to focus their efforts elsewhere.



Despite the announced cuts by these three major airlines, Jiron said Sunport officials are optimistic about the future. There’s been an increase in travel of approximately 2.5 percent every year for the past six years, and, Jiron added, the Sunport is less affected compared to other airports:

 

Albuquerque is a little insulated because we’re the only major airport in the state. In many other states you’ll find three to four airports competing for the same business, but the Sunport is the only one here. Not to mention, Southwest Airlines has 50 percent of our market share, and is doing quite well because it’s paying only half of what the others are paying for fuel.

 

Southwest Airlines is weathering the storm of rising oil prices because it aggressively "hedges" future oil prices. In other words, it bets on future oil prices, and has successfully locked in prices for a significant portion of its fuel in 2008. This policy is serving it and by extension New Mexico very well this year, with Southwest paying much less than what the other major airlines are currently paying for fuel. If oil prices stay high, this may remain the case in years to come.

 

Last year, the Sunport served 6,667,390 passengers, and employed 3,400 people. As of April, the Sunport had seen a 5.5 percent increase over 2007 in travelers coming and going. The economic impact of the Sunport is much larger, though, according to the Web site:

 

ABQ’s Master Plan Update, approved in 2004, determined that civilian activities at the airport produced an economic impact of $2.13 billion in 2001 and supported 38,579 jobs in the Albuquerque area. It predicts that impact will grow to $2.15 billion and 47,077 jobs by the year 2010.



The nitty gritty details



In a letter to its 45,000 employees, Continental Airlines announced the elimination of 3,000 jobs and 67 aircraft. The letter also said both CEO Larry Kellner and President Jeff Smisek would not take salaries for the rest of the year. Laying direct blame on rising fuel prices, the employee bulletin said the airline industry was facing its worst crisis since 9/11:

 

These actions are among many steps Continental is taking to respond to record-high fuel prices as the industry faces its worst crisis since 9/11. The price of Gulf Coast jet fuel closed yesterday at $151.26—about 75 percent higher than what it was a year ago. At that price and at our current capacity, our fuel expense this year would be $2.3 billion more than it was last year. That increase alone amounts to about $50,000 per employee. These record fuel costs have fundamentally shifted the economics of our business. At these fuel prices, a large number of our flights are losing money, and Continental needs to react to this changed marketplace.

 

Continental will begin phasing in the service cuts in September after the peak summer travel months, with an overall service reduction of 11 percent in the fourth quarter of 2008 over the previous period last year.

 

United Airlines preceded Continental by a few days in its announcement that it would reduce capacity 17 percent by 2009 to meet the constraints of an “unprecedented fuel environment.” The company will eliminate 100 of its oldest aircraft, and 1,400 to 1,600 salaried and management employees, and contractors. “Front-line” employee cuts will be determined in the coming months as the schedule of flights is reworked. Glenn Tilton, United’s chairman, president and CEO, said in a press release, “This environment demands that we and the industry act decisively and responsibly. At United, we continue to do the right work to reduce costs and increase revenue to respond to record fuel costs and the challenging economic environment.”



A little over two weeks ago, American Airlines led the move to reduce costs when it announced a reduction in capacity by 11 percent in the fourth quarter of 2008, with corresponding employee lay-offs. The company also announced fare increases and fuel surcharge increases, and made waves with a new policy to charge $15 each way for the first checked bag. In the press release describing the changes, Chairman and CEO Gerard Arpey said, “The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy.” The press release also described the pressure being felt overall by the U.S. airline industry:

 

Arpey cited the U.S. airline industry’s first quarter 2008 pre-tax loss of nearly $2 billion excluding special items and the fact that eight U.S. airlines have filed for bankruptcy protection this year, including five that have ceased service. AMR paid $665 million more for fuel in the first quarter than it would have paid at prices from the year-ago period. Its first quarter fuel expense increased by 45 percent year over year, while its total revenue increased by 5 percent. The price of jet fuel has increased by more than 10 percent since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.

 

Impacts of rising oil prices on other airlines



U.S. Airways Chairman and CEO Doug Parker said in a press release on May 30 that while “consolidation” in the industry is necessary, and that the industry “continues to struggle with how to function in a world with $130/bbl oil prices,” no changes would be made within the company at the moment. However, Parker warned that:

 

While we are prepared for this environment, we, like all airlines, need to adapt our plans and business models in light of much higher fuel prices. We are working a number of initiatives and you’ll hear more about them in the weeks and months ahead.

 

Delta and Northwest Airlines haven’t announced similar cuts, probably due to their expectation of significantly reducing their costs through a merger they are currently undertaking.

 

Smaller airlines recently filing for bankruptcy protection due to rising fuel costs include Skybus, ATA, Aloha, Eos, Champion Air and Oasis Hong Kong. Frontier Airlines has also filed for bankruptcy protection but blames the problem on withheld credit card payments. Nonetheless, in a May 23 press release the airline announced a series of fee increases to offset rising fuel costs, including a second checked bag fee.