Airline execs testify on effects of higher fuel costs, fees

Suzanne Struglinski

Friday, June 4, 2004 | 11:02 a.m.

WASHINGTON -- The airline industry has done all it can to try to return to its pre-Sept. 11 financial standing, but some obstacles are still in its way, top airline executives told the House Aviation Subcommittee on Thursday.

Passengers are returning to the air, but rising fuel prices, increases in security costs and taxes, and additional threats of terrorist attacks are making it hard to keep them there, executives said.

The executives also said the government needs to let the industry market work for itself.

"There are too many airplanes, too many networks, and too many hubs. In addition, taxes, fees and mandate costs are far too high," said Douglas Parker, chief executive of America West Airlines, the second-busiest airline in Las Vegas. "The industry will continue to struggle so long as this situation exists ... Both the government and industry must be willing to let the markets work."

Parker admitted it was "ironic" for his company, which is still around today because of a federal loan guarantee, to say the market should be allowed to work.

"Because of the bold steps taken by passing the Stabilization Act, the free market has taken hold and now should be allowed to take its course," Parker said.

Parker said this does not mean there is no role for Congress, which could move to keep taxes and mandates down.

"Today, the litany of taxes and fees on airlines and their passengers has grown to fifteen and now includes huge expenditures for security," he said.

Glenn Tilton, chief executive of United Airlines, said by next year the company will cut spending, including salaries, by $5 billion in annual costs.

"Were it not for the extraordinary fuel prices we are currently experiencing, I would be able to appear before you today and say with some certainty that we would be profitable this quarter," Tilton said.

The airline industry has lost $24 billion since the Sept. 11 terrorist attacks.

Jeff Potter, president of Frontier Airlines, said each penny-per-gallon increase in fuel costs the airline $1.4 million.

Potter said the taxes on tickets "also impose a significant burden on airlines."

"When an airline ticket is sold, the taxes and fees paid from that ticket are among the highest in any service industry," Potter said.

Out of a $200 round-trip ticket from Atlanta to Los Angeles, the airline receives $148, he said.

Frontier has repaid $4.8 million of the $12.8 million it received in federal assistance, Potter said. The company has also paid off a $70 million guaranteed loan four years early, he said.

Subcommittee Chairman Rep. John Mica, R-Fla., said Congress should not reregulate the airlines to save them from market competition.

"While Congress may assist the airlines with mandated security costs and war risk insurance, let me make it clear that Congress is not going to underwrite losing airline operations," Mica said.