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Surging Oil Prices Slap Airlines (and Travelers)

Remember the dark days of 2008, when the airline industry shuddered from record oil prices? Well, those unhappy days are here again.

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Here's something you already know: The surging price of crude oil is once again causing us real pain at the pump. Gasoline prices were higher last month than any January on record. and everyone in the prediction business says the outlook is grim for spring and summer prices.

Here's something you probably need to be reminded about: Surging oil prices will cause you real pain at the airport too, because airlines are disproportionately affected by energy prices. They'll raise fares on business travelers, and you'll stop flying because prices have gotten too high. Then they'll drop routes that are no longer profitable and mount counterintuitive fare sales in a desperate bid to lure discretionary travelers back onto the planes. Some airlines will die.

And here's something I'll tell you now because you'll probably remember it yourself before the end of this column: It's déjà vu all over again. We've lived what we're about to live before. It was called 2008. It wasn't fun. And it'll probably be worse this time.

Let's start at the metaphoric top line and the real-world gas pump, shall we? With crude oil prices nearing nine-month highs, selling for about $105 a barrel on New York markets on Tuesday morning, gasoline has surged to what the AAA says is a national average of $3.57, up from $3.17 a year ago. We've already hit the $4 plateau in some parts of the nation. Given the tensions with Iran, the "experts" that predict $5-a-gallon gas by summer don't look all that wild-eyed.

The airlines, which spend at least 35 percent of their operating budgets on energy costs, actually have it worse. They paid an average of $3 a gallon for jet fuel in 2011, the highest average annual price in history and a 30 percent year-over-year increase. Jet-fuel prices in 2012 are already averaging $3.12 a gallon. Last Friday, it sold for $3.20 a gallon, according to a spokesman for Airlines for America, the industry trade group.

Spiking fuel costs have already contracted the size of the U.S. aviation system. The Department of Transportation says airlines operated just 6.08 million domestic departures in 2011, the lowest number in a decade. In fact, departures have fallen every year since 2008, when crude-oil prices spiked at $147 a barrel in the spring and the economy melted down in the fall. Want an even longer view? Back in 1990, the Federal Aviation Administration predicted that the airlines would board nearly 815 million passengers by 2001. We've never come close to that number, and last year the passenger count was below 800 million.

Want still more? Two airlines, Spanair of Spain and Malev of Hungary, have already folded this year after their government backers decided to stop throwing good money after high oil prices. And Air Australia collapsed last Friday, grounded its flights, and abandoned about 4,000 travelers around the Pacific. According to the administrators called in to salvage the remains, Air Australia stopped operating because it couldn't afford to buy the fuel needed to fly its planes and passengers back to Australia.

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