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American Air -Fuel cost causes slash 12% capacity & jobs

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This topic contains 2 replies, has 1 voice, and was last updated by  Charles Randall 12 years, 10 months ago.

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  • #3619

    Charles Randall
    Participant

    AMR’s American Air Will Slash 2008 Capacity, Cut Jobs on Fuel
    2008-05-21 09:45 (New York)
    By Mary Jane Credeur and Mary Schlangenstein
         May 21,2008 (Bloomberg) — AMR Corp.’s American Airlines, the
    world’s largest carrier, will slash U.S. capacity as much as 12
    percent, retire at least 75 jets and cut an unspecified number
    of jobs in response to record fuel prices and slowing demand.
         The planned U.S. capacity reduction is more than twice what
    American had announced in April, and represents the third cut
    this year, AMR said today at its annual meeting. The Fort Worth,
    Texas-based company will add a $15 fee for the first checked
    bag.

  • #6839

    Charles Randall
    Participant

    Here is update on havoc fuel prices is wrecking on Airline industries – already 5-6 smaller companies have already gone bankrupt & now the worlds largest carrier has had slash capacity 12% along with jobs.  The demand destruction from transportation fuels prices are having is creating some long term demand loss – especially in the Jet fuel consumer area.
     
    This may be good news for export markets diesel supply shortfall …. in short term, but having to shove more jet fuel into diesel is going to be refining margin loss & opportunity loss long term (especially with military going ahead with security driven Coal to Liquid programs for their jet fuel needs ~20% market).
     
    The food industry has already realized that lot grain prices have been driven not by speculators & ethanol industries and are taking action through Congress & laws to limit the damage. Why is the Oil industry still sitting on the sidelines for speculation impacts …. believing the media about record profits when in fact it is not / only gross profits – the real story is that they are losing ground on profits as percentage of revenue, assets and investment basis. And now they are losing consumers – some forever. 

  • #6717

    Charles Randall
    Participant

    <Here is update on demand destruction Jet Fuel, Price Premium collapse & eventual cascade into diesel price drop as mentioned in previous articles – CER>
     
    Jet Fuel Premium Collapse as Airlines Ground Fleets Weakens Oil

    By Robert Tuttle
         July 14, 2008 (Bloomberg) — Jet fuel’s 100 percent rise over the
    past year to a record $4.36 a gallon is setting the stage for
    its decline in the next six months.
         AMR Corp.’s American Airlines Inc. and UAL Corp.’s United
    Air Lines Inc. are among carriers readying their biggest cutback
    in fuel use since 1991 because of the price. The U.S. airline
    industry plans to ground 413 aircraft, eliminating 8.8 percent
    of seating capacity
    ,
    as increasing fuel costs spur losses of as
    much as $13 billion, the Air Transport Association says.
         Fuel demand will fall 7.5 percent this year, or 95,000
    barrels a day, and 104,000 barrels a day in 2009, according to
    the U.S. Energy Department. That will spur as much as a 90
    percent decline in the fuel’s premium to heating oil futures,
    said Mike Busby, manager of oil and refined-products trading for
    Northville Industries Corp. in Melville, New York.
         “People are responding to a doubling of prices and the
    airline industry is one industry that is responding,” said
    Edward Morse, chief energy economist at Lehman Brothers Holdings
    Inc. “The markets will weaken significantly after the third
    quarter.”
         The decline in airline fuel consumption parallels the drop
    in gasoline sales to a five-year low as drivers take vacations
    closer to home and use mass transit
    . Crude oil declined 35
    percent in the three months after Sept. 11, 2001, a time when
    airline traffic plummeted 30 percent.
         Jet fuel, along with diesel, is traded at a differential to
    heating oil futures because the fuels are made from similar
    components of crude oil at the refinery. Jet fuel, a form of
    kerosene used to power jets, sold for 20 cents a gallon more
    than the heating oil contract in the New York Harbor market on
    July 11, more than twice the average during the past five years
    .
    The fuel’s premium should decline to 2 to 8 cents a gallon by
    the fourth quarter, Busby said.

                              Price Decline

          The airline cutbacks “should help bring the price down,”
    said Peter Beutel, president of energy consultant Cameron
    Hanover Inc. in New Canaan, Connecticut. The current premium is
    because of “more than anything the summer demand, the peak
    demand.”
         In 1991, when U.S. jet fuel consumption slid 8.2 percent,
    crude oil fell 40 percent from a high of $32 a barrel in January
    to $19.12 by the end of the year. Jet fuel traded at a 1.55 cent
    discount to heating oil by Dec. 11 of that year, down from a
    3.85 cent premium six months earlier.
         Lehman Brothers expects crude oil to average about $90 in
    the first quarter of next year. Oil climbed to a record $147.27
    a barrel on July 11 amid rising fuel demand in China and India,
    and the potential threat of an Israeli air strike on Iran.
    Airline cutbacks may help send the price to $107 a barrel in
    2009, Merrill Lynch & Co. said in a July 7 report.

                              Falling Demand

         Demand for oil will be less than half of initial forecasts,
    increasing by 616,000 barrels a day, because of the slide in
    transportation use, Merrill Lynch said.
         Jet fuel rose 3.92 cents to $4.2766 a gallon in New York
    Harbor on July 11. It’s gained 51 percent this year, outpacing
    the advance in gasoline and diesel, and touched the record $4.36
    on July 3.
         Heating oil for August delivery rose 3.92 cents, or 1
    percent, to close at $4.0766 a gallon on July 11 on the New York
    Mercantile Exchange, after reaching a record $4.1586 a gallon
    earlier in the day.
         U.S. jet fuel consumption for the four weeks ended July 4
    was 2.2 percent lower than a year earlier, according to Energy
    Department data.

                             `Demand Destruction’

         “There is definitely demand destruction going on,” Sung
    Yoo, an oil analyst at JPMorgan Chase & Co., said in a telephone
    interview. “We could see a bit of a pullback of the entire oil
    complex after the summer.”
         Last month, Northwest Airlines Corp. said it would ground
    14 Boeing Co. 757 planes and Airbus jets during the final three
    months of 2008. Overall, Northwest is reducing its domestic and
    international flying by up to 9.5 percent, the airline said in a
    regulatory filing.
         Airline cutbacks are part of a broader trend in which
    higher fuel prices are reducing consumption. U.S. gasoline
    demand in the four weeks ended July 4
    averaged 9.3 million
    barrels a day, down 2.1 percent from the same period a year
    earlier.
         The reduction in U.S. fuel consumption may not be
    sufficient to reverse oil’s climb toward $200, said Adam
    Sieminski, chief energy economist at Deutsche Bank AG. “The
    difficulty is that demand is still rising in China and the
    Middle East and the rest of the world” while oil production may
    be leveling off, he said. “What price does it take to have
    demand growth go to zero to match zero supply growth? That’s
    very scary because it might take a really high price.”

                             Overseas Expansion

         While U.S. airlines cut back, some carriers overseas are
    expanding
    , “soaking up demand reductions achieved in the United
    States,” Merrill Lynch said in a July 4 report.
         Exports of the fuel for the first four months of the year
    averaged 55,000 barrels a day, the highest since 2005, U.S.
    Energy Department data show. For the week ended July 4, U.S. jet
    fuel imports fell to 34,000 barrels a day, the lowest since Aug.
    19, 2005.
         The narrowing of jet fuel’s premium to heating oil may be
    limited if refiners don’t increase crude processing rates
    ,
    Beutel, the energy consultant, said.
         “One of the biggest factors here is the simple inability
    of refiners to bring up their runs,” he said. “We are still
    below 90 percent and that is unheard of.”

                             Operating Rates

         Refiners have operated at an average of 86.4 percent
    capacity this year, the lowest since 2001,
    Energy Department
    data show. U.S. jet fuel production averaged 1.62 million
    barrels a day, 3.5 percent lower than a year earlier and
    inventories of 38.8 million barrels were 6.1 percent lower than
    a year earlier.
         The airline cutbacks also may not be as bad as expected,
    said Jason O’Connor, head of refined products trading at
    Starsupply Petroleum, a division of GFI Group Inc., in Norwalk,
    Connecticut.
         “With the airlines, a lot of this could be political
    posturing,” he said.

    –Editor: Dan Stets, Steve Bailey
    To contact the reporter on this story:
    Robert Tuttle in New York at +1-212-617-3465 or
    rtuttle@bloomberg.net

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