US airlines project that they could lose USD$10 billion in 2008 due to skyrocketing fuel costs, a sum that would almost match the industry's worst-ever year loss in 2002.
James May of the Air Transport Association also told a joint US Senate hearing on speculative trading in the oil markets that up to 200 communities could lose airline service as a result of carrier capacity cuts that are being imposed to save money.
"This nation's economy is inextricably linked to the viability of its air transportation system. If the airlines continue to spiral downward, so will the economy," May said.
Wall Street analysts also are predicting multi-billion dollar losses for big airlines that are spending 50 percent more on fuel this year. Total fuel costs are expected to top USD$61 billion, the largest expense for airlines.
Shares of US airlines moved broadly higher on Tuesday as global crude prices slipped from record highs. However, shares of United Airlines were off 2.6 percent to USD$7 after the company projected its 2008 fuel bill would hit USD$9.5 billion.
United's disclosure was made as part of May's push in Congress for tougher regulation of oil futures trading. Airlines believe market manipulation and speculation are behind the record run-up in global crude prices although the Bush administration believes recent price spikes are due mainly to supply and demand.
May said quick legislative and regulatory action is needed to maintain a viable airline industry.
"We are asking for Congress to take steps now to totally close the loopholes and make the market more transparent and balanced, to ensure a level playing field for all," May said.
Lawmakers also have pushed for tighter oversight. US oil futures regulators said on Tuesday they are moving to impose more limits on overseas trading.
Some Wall Street analysts believe the current airline downturn could be worse than the one that triggered bankruptcies at four major carriers between 2002-07.
Carriers are scrambling to reduce capacity and find new revenue through fees for checked luggage and other extras that used to be included in the cost of a ticket.
Higher industry fuel costs are a major industry-wide problem. But revenues also are beginning to raise concern with pressure on airlines to boost them significantly to offset higher costs.
Lehman Brothers analyst Gary Chase believes "cracks are forming" in the airline industry revenue picture but remains cautious about the overall outlook and does not believe there has been a "sudden weakening" of revenue across-the-board that is "typical of airline downturns."
Some carriers, including US Airways and low-cost carrier AirTran, have reported weaker than expected second quarter revenue guidance while others, such as JetBlue Airways and Continental Airlines, are doing better.
