Surging oil prices could leave American Airlines parent AMR Corp, the largest US carrier, with a much fatter fuel bill than it anticipated just two months ago.
In a filing on Monday with the Securities and Exchange Commission, the Fort Worth, Texas-based company said it now expects to spend US$2.98 per gallon (3.78 liters) on fuel this year, 12.5 percent more than its mid-January prediction of US$2.65 a gallon.
The revised forecast will leave the company with a fuel bill this year of US$9.29 billion -- more than US$1 billion more than it was expecting earlier in the year -- assuming prices don't rise even further than planned.
Last year, American spent US$6.67 billion on fuel, spokesman Tim Wagner said.
"Fuel prices are like weather for airlines," Wagner said. "They're out of our control, but we do our best to mitigate the impact of increases by focusing on what's within our control."
AMR's forecast was based on assumptions as of March 14, when crude prices closed within a few cents of a record above US$110 a barrel. Prices have declined since -- light, sweet crude for May delivery fell US$0.98 to settle at US$100.86 a barrel on the New York Mercantile Exchange on Monday.
Like gas at the pump, jet fuel costs have jumped sharply in recent months as the cost of crude has risen. Through last Tuesday, spot jet fuel prices were nearly US$3.40 a gallon, up 20 percent from the start of the year and 83 percent over the same time last year, the most recent data available from the Energy Department's Energy Information Administration showed.
Airlines try to control fuel costs by entering into hedging agreements that lock in advantageous prices. American, which expects to burn through 3.12 billion gallons of fuel this year, said it has about 29 percent of its fuel needs for the year hedged at an average price of US$76 a barrel, or US$2.42 per gallon of jet fuel.
Like its competitors, American has managed to offset some of the sting from higher prices by raising fares, cutting costs and making its planes more efficient.
Monday's filing shows those efforts seem to be paying off. The company said it expects passenger unit revenue to rise between 6.9 and 7.9 percent during the first three months of the year compared with the same period last year. Cargo and other revenue should "increase modestly," it said.
Even so, several analysts are now predicting that increased energy costs will likely force the company to post its first loss in three years this year.
Those concerns led credit agency Standard & Poor's Ratings Services to cut AMR's short-term debt rating and lower the credit outlook to "negative" in a separate move Monday.
"The outlook revision and short-term rating downgrade are based on the expected impact of much higher jet fuel prices and a weakening U.S. economy, which we believe will cause AMR to report a loss this year," S&P credit analyst Philip Baggaley said.
Last year, the company's net income totaled US$504 million on revenue of US$22.94 billion.
AMR shares rose US$0.46, or 5 percent, to close at US$9.62. Other airline shares also rose.
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