America seems to have returned to the depression of the early ‘80s, as more and more economic reports indicate things have not been this bad since President Reagan took office promising that it us “morning in America.”
The airline industry is no different with the latest Air Transport Association report saying that fuel prices have caused the fastest cost increase since the second quarter of 1980. In fact, said ATA, first quarter airline costs rose a record 31 percent.
The composite cost index rose to 228.7 in the first quarter, up 31.3 percent from the first quarter of 2007, easily outpacing the 4.2 percent increase in the U.S. Consumer Price Index.
The three largest components of the index – which includes all operating expenses as well as interest expense – were fuel (28.7 percent), labor (20.9 percent) and transport-related expenses (14.0 percent), comprising payments by mainline carriers to their regional partners. On average, fuel accounted for 29.4 percent of first-quarter operating costs. Year-over-year highlights include:
• The average price paid for fuel increased 50.8 percent
• Airlines experienced a 19.9 percent jump in maintenance material costs, offset in part by a 23.9 percent decline in aircraft insurance costs and a 17.0 percent decline in other insurance costs
• Overall unit operating cost per available seat mile rose 1.51 cents to an all-time high of 13.72 cents
• Despite a 2.6 percent increase in passenger yield, the average break-even load factor rose 6.2 points to 83.5 percent, well above the average realized load factor of 77.2 percent

The industry, said ATA, is actively involved in creating “a meaningful national energy policy that includes increased domestic supply, conservation, investment in energy alternatives and immediate curbs to rampant speculation in the energy futures markets.” Its latest effort – Stop Oil Speculation Now – calls for federal action on numerous fronts to help materially reduce unnecessarily high energy prices. The coalition, including nearly 30 regionals as well as the Regional Airline Association, applauded the introduction of S. 3268 – Stop Excessive Speculation Act. In an open letter to customers, signed by a dozen airline chiefs, the coalition explained that it wants the expansion of oil supplies through new domestic exploration, efforts to advance alternative and renewable energy sources and the improvement of energy conservation. The campaign resulted in one million messages being sent to Congress. Airlines are mobilizing their frequent flyers to bombard Congress with messages supporting S. 3268 legislation.
The coalition is calling for
• Strengthening regulations weakened by the Enron Loophole and other loopholes
• Limiting the amount of oil that individuals or groups can trade speculatively in the energy futures markets while unfairly driving up prices
• Requiring reporting by unregulated, secret markets like the swaps market: All markets should have basic regulations that report the amount of oil people are buying, no matter who they are or where
• Make foreign traders follow U.S. rules and laws, just like everyone else who does business in the United States

A new poll issued last week found 80 percent of Americans polled said that they believe oil commodities speculators are manipulating the price of oil, and that more than two-thirds (67 percent) believe Congress should pass legislation creating new regulations governing oil speculators. Additionally, 70 percent of Americans polled said that oil commodities speculators are driving up the price of oil and profiting at the expense of the U.S. economy. Sixty-eight percent also believed that new regulations would stabilize and ultimately bring down the price of gas.
Support for curbing oil speculation crossed all demographics and political philosophies: 62 percent of conservatives, 69 percent of moderates and 71 percent of liberals believe that Congress should pass new regulations. Republicans support additional regulation on oil speculators by a margin of 55 percent to 33 percent. Overall, awareness of the oil speculation issue is high at 63 percent
More voters polled (23 percent) said that oil speculators were “most to blame” for the high price of gasoline, over oil companies (20 percent), President Bush (20 percent), the countries that produce oil (11 percent), Congress (10 percent) and high consumer demand in the United States (10 percent)
“Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery,” said the letter to passengers. “Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.”
The coalition added that in recent months, the number of ‘paper barrels’ traded by speculators has risen dramatically, peaking at 22 times the physical market on June 6, when crude oil shot up $11 in one session. Interestingly too, that spike came immediately on the heels of a prediction of $150 per barrel oil by one of the speculators with the most to gain by the increase.
Even so, Delta CEO Richard Anderson, expressing the same suspicion during last week’s second quarter webcast, indicated that non-commodity markets have been bad for investors. “When you think about has what happened to the money market in the last two years – the bond market, the stock market, mortgage lending – pretty much all the other places for all the money to go have not been good – so money has moved to commodity markets,” he said. “Since 2004, $350 billion moved to futures markets which are unregulated. It’s all flooding into commodities, wheat, corn, oil. When you have a bank saying oil will go to $150 to $200 per barrel, everyone is going to go there, and you know there is something more going on than just demand.”
“Over 70 years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation,” the letter continued. “However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.”
ATA President and CEO James C. May said S. 3268 creates a much needed distinction between legitimate hedgers and those who are in the market for purely speculative purposes. “This ensures that traders with no relationship to the physical product no longer can take advantage of existing loopholes,” said May. “The bill would close the ‘Foreign Board of Trade’ or ‘London’ loopholes by requiring transparency and limits similar to those required for trading on U.S. exchanges.”
Today’s oil price bubble is unfairly taxing American families and restricting our nation’s economic potential, said SOS Now. “Every time products such as food or gas are purchased, consumers are impacted by unregulated, secretive and often foreign commodities futures markets. Speculators in these markets are increasingly buying and selling commodities such as oil to sell again, rather than to use. As largely unregulated speculators pocket billions of dollars at the expense of U.S. consumers, the price of commodities has increased out of proportion to marketplace demands.
As a result, legitimate customers such as trucking companies, airlines and consumers have been forced to purchase oil at unnecessarily higher prices. This has dramatically raised costs, resulting in needlessly high prices for consumers and businesses.
“Without question, energy futures markets, when functioning with proper oversight, serve a useful purpose, especially to bona fide hedgers,” the coalition continued. “Reasonable financial controls and transparency, which have been eliminated at the urging of the big speculation market players, need to be reestablished.” Related Story
SOS Now is not the only Washington-based energy coalition. The Washington Post reported that the Sierra Club, opposing exploration in environmentally sensitive areas, created National Outer Continental Shelf Coalition with Environment America. Then there is the Coalition for Affordable American Energy announced in a letter sent recently to business associations which wants reduced energy prices any way possible. “The group is billed as a federation of energy users,” said the Post. “CAAE will focus on bringing the collective weight of business users to bear until such time as a national domestic energy policy is adopted which will accomplish its goal. The group ‘will add a voice not heard in any concerted way before in the energy debate – that of the thousands of businesses, large and small, which depend upon affordable energy supplies to operate.’”
In its letter, the coalition said that, while it supports initiatives which encourage conservation and the development of renewable and alternative energy sources, its will focus most of its activity on increasing domestic oil and gas production “since alternative sources will not be able to meet U.S. demand for the next 25 years or more."