Fuel costs AA millions in daily losses

At the opening session of the Association of Corporate Travel Executives Global Education Conference and Corporate Travel World at the Grand Hyatt Washington, D.C, a senior official of American Airlines announced that it is losing $3 million a day because of its current fuel pricing scheme.

Senior vice president of government affairs William Ris said that fuel is now the airline’s largest expense.

“We are not in a perfect storm,” Ris said. “That’s where all the storms come from different directions at once. We are used to a lot of headwinds in our business. We are not in a perfect storm. We’re in a tidal wave coming from one direction and that’s the price of fuel.”

Ris explained that fuel previously amounted to around 10 per cent of AA’s operating costs. Today, it accounts for 40 per cent. Prior to 2008, Ris said the airline lost $1.76 on every passenger that flew with the airline, but today it is losing $10.89 per passenger, accounting for millions of dollars in losses every day.

“For every $100 dollars of revenue that an airline takes, right off the top $20 or $25 go to taxes and fees,” Ris said. “Now with the fuel prices, $40 goes just to fill up the tank. That leaves just 40 more dollars to buy airplanes, maintain the fleet, pay our people, fund pensions and healthcare, pay rent and a variety of other expenses. That is not a sustainable business model.”

One solution proposed by Ris included reducing airline capacity, a model which seems to have worked for Southwest Airlines.

www.aa.com