Airlines to call for U.S. curb on oil speculators

[PreContact]

http://www.reuters.com/article/marketsNews/idINN1625889820080616?rpc=44

Airlines to call for U.S. curb on oil speculators

Mon Jun 16, 2008 5:31pm EDT

By John Crawley
WASHINGTON, June 16 (Reuters) - U.S. airlines, battered by skyrocketing fuel prices, will on Tuesday call for urgent congressional action to stem what they believe is excessive speculative trading in oil markets.

The focus on commodities trading is the industry's strongest appeal to the government to address global prices, which have nearly doubled this year and have decimated industry balance sheets. Carriers are burning through cash reserves to stay aloft.
James May, president and chief executive of the leading trade group for commercial airlines, the Air Transport Association, will tell Senate lawmakers at a hearing called to investigate complaints about speculators that 2008 could be the worst year ever financially for airlines.

"If Congress does not act soon, this country will not have a viable airline industry," May said in a statement provided to Reuters ahead of the hearing.
May plans to outline what his group calls the importance for "urgent, critical government oversight" of commodities futures trading.
Airlines and other industries want Congress to change rules regulating energy commodity futures markets to make trading "fairer and more transparent," May's group said.

Analysts expect heavy airline losses for the current quarter and full year on jet fuel prices that have gone from $90 a barrel at the end of 2007 to $163 -- including refining costs - on June 13. Merrill Lynch estimates the eight biggest domestic carriers alone will lose $5.3 billion this year.
These include American Airlines, a unit of AMR Corp, Delta Air Lines Inc, UAL Corp unit United Airlines, US Airways Group Inc, Northwest Airlines Corp and other carriers.

Most carriers are churning through cash reserves to help pay for fuel, which is their highest expense, and some experts predict possible bankruptcies next year involving the biggest airlines if prices do not retreat.
Airline shares rose on Tuesday, with crude prices easing off Friday's close.

The top U.S. oil market regulator and officials from leading futures exchanges will also testify at Tuesday's joint Senate hearing.
Many U.S. lawmakers - mostly in the Democratic majority - see excessive speculation as the main culprit for increased prices. The Bush administration is looking into speculation, but believes oil price spikes are being driven by the fundamentals of world supply and demand.

Even if speculation accounts for a fraction of price increases, airlines would welcome any government relief.
Every $1 increase in the price of a barrel of oil adds $465 million in fuel expenses, industry figures show. U.S. airlines are on track to pay more than $61 billion for fuel this year, about $20 billion more than last year.
"How much fluff is in the market because of speculation is anyone's guess," said Robert Mann, an airline industry consultant who believes airlines are in a fix partly of their own making.
He notes that airlines, in most cases, failed to adequately hedge their long-term fuel purchases and have not invested nearly enough in more-efficient aircraft.
"At the end of the day they'd be talking about paying spot prices on less than half their consumption instead of, in some cases, all of it," Mann said.
Mann also said a reliance on smaller planes in recent years at major airports and over-scheduling have generated less revenue and worsened congestion and delays, which wastes enormous amounts of fuel. (Editing by Braden Reddall)

 

[spacecadet1]

"Mann also said a reliance on smaller planes in recent years at major airports and over-scheduling have generated less revenue and worsened congestion and delays, which wastes enormous amounts of fuel."

Wow, what a concept. Instead of running 12 flights a day from ORD to podunk, Iowa, run 4 or 5 in a 737. It's probably going to this anyway, after the only airline left that hasn't liquidated is SW.

 

[Colonel Savage]

SWA was able to see a problem coming and do something about it, but the other "airline executives" instead chose to spend their time fighting and beating their employees into give backs and job cuts. Now the whiners are running to the government to make all the "mean oil speculators go away", because they can't figure out how to market a product people would be willing to pay a decent price for.

Besides, all they'll get from this is the same "conclusion" from the "blue ribbon panel" we got a few weeks ago which was, "We see no problem..."

Embarrasing...

 

[HAL]

Speculation is the prime cause of the runup in oil prices, but I doubt the government will do anything substantial about it. The current thinking in business and government is; "Money is great, and d@mn the consequences".

HAL

 

[bugchaser]

It may be true that speculation in the commodities markets are driving up prices to some extent, but it is not responsible for anywhere near all of it. Some speculation is necessary for the markets to function. In other words, speculators provide the liquidity that allows users and producers of commodities to easily enter and exit the market. Many, many businesses use the futures markets to set their costs and/or revenues. I know that hedging seems unusual to some since most airlines haven't utilized them very well, but in many industries it is a standard and necessary practice.