This is an excerpt from EERE Network News, a weekly electronic newsletter.

August 27, 2008

High Fuel Costs Ground U.S. Travelers on Labor Day Weekend

About 1 million fewer passengers will fly on U.S. airlines during the Labor Day holiday period compared to last year, according to the Air Transport Association of America (ATA). The industry trade organization tallied a 5.7% drop in holiday traffic this year, and an even larger drop for domestic travel, at 6.5%. The ATA blames higher energy prices, rising airfares, and airline schedule cuts as the main reasons for the drop in travel. All of those factors are related to the sky-high price of kerosene-based jet fuel, which has averaged $160.47 per barrel so far this summer. That's a 79% increase above last summer's average jet fuel price of $89.82 per barrel. See the ATA press release.

The high fuel prices are being felt throughout the airline industry, and for most companies, the answer is to transition quickly to more fuel-efficient airplanes. Until those new planes arrive, one of the few ways to contain costs is to fly less, an approach airlines refer to as "capacity reductions." American Airlines, for instance, plans to retire 30 MD-80s this year and all 34 of its A300 aircraft by the end of 2009. The company's mainline domestic capacity is expected to drop by 5.7% this year and even further next year as it awaits the arrival of 70 Boeing 737-800 aircraft, which are more fuel-efficient, in 2009 and 2010. See the American Airlines press release.

Nearly all the airlines are experiencing similar woes. Continental Airlines will cut its domestic mainline capacity by 10% starting in September and will retire 67 inefficient aircraft by the end of 2009, causing a loss of 3,000 jobs. Delta Air Lines plans to cut its domestic capacity by 13% for the second half of the year, while Northwest Airlines Corp., which is merging with Delta, plans to retire 47 aircraft and cut its mainline capacity by up to 9.5% in the fourth quarter of 2008. And United Airlines is retiring 100 aircraft and expects its North American mainline capacity to drop by about 8% this year (including a 16% drop in the fourth quarter), followed by a 13% drop next year, which will cause a loss of about 7,000 employees. See the Continental press release and the press releases from Delta (PDF 112 KB), Northwest, and United. Download Adobe Reader.

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