IMPACT ON TAXATION & FINANCE

As Fuel Prices Soar . . . Airlines Take Action

Given the increase in jet fuel, some airlines are maintaining a relatively comparable airfare, but in order to compensate they have increased charges on other amenities. Airlines now have to tighten their seat belts, as the fuel turbulence continues.

A few weeks ago I attended the 12th full edition of CMEx – the Caribbean Media Exchange on Sustainable Tourism - in Puerto Rico. At the Spirit Airline check- in counter I realized the Airline was charging to check my bag. This was indeed my first encounter, paying $10 -each way- for my checked luggage.

No Free Lunch

Once on board, what struck me most were the à la carte fees. $2 for a bottle of water, $3 for the peanuts or pretzels, $2 for non-alcoholic beverages, $4 for a sandwich and my usual beer was $5. Guess what? It was the best tasting water I had in a long while. To add insult to injury, it was another experience where the almighty U.S. dollar was refused. We were not permitted to pay with cash. Credit cards only. After thinking this through I understood why. This way, monies collected on board would be transferred directly into a bank account as it warrants less cash accountability.

Almost nothing is complimentary on airlines anymore, not even what many passengers consider a simple necessity. Some airlines are raising fares and adding surcharges and fees as fast as they can, in order to be competitive in the industry.

New Strategies

Nationwide, airlines are scrutinizing every step of their operations, from the tarmac to the sky, and from the nose to the tail of their planes, searching for new ways to enhance their ability to pay their ever increasing fuel bills. Airlines are carrying less water for the bathroom faucets and toilets; and are replacing passenger seats with lighter models.

The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association.

If prices stay where they are, the nation’s airlines will collectively spend $61.2 billion this year on jet fuel — more than five times what they spent in 2002, when travel fell sharply after the September 11, 2001 terrorist attacks.

Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil soared past $100 a barrel this year. Now, all airlines are urging employees for suggestions and recommendations to save on fuel usage.

Did you know that debris or dirt is considered a culprit? American and Southwest are washing a handful of jet engines each night, a process that used to occur only during thorough maintenance overhauls. Southwest figures it has already saved $1.6 million in fuel costs since April by reducing the drag caused by dirt and debris.

A number of airlines are flying their planes somewhat slower in order to save fuel — 480 miles per hour, for example, instead of the usual cruising speed of 500 miles per hour.

Changes Are Inevitable

Airlines including Delta are swapping heavier seats for models weighing about five pounds less. American is replacing its bulky drink carts with ones that are 17 pounds lighter. The airline said that move will help save 1.9 million gallons of fuel a year, on top of the 96 million gallons it is saving through other means.

Water is another target. Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel is 6.8 pounds.

Believe it or not, for every 25 pounds removed from an aircraft there is an overall savings of approximately $440,000 yearly. Airlines also are trying to cut fuel consumption at the airport. Most of them now run their planes’ electrical systems at the gate by plugging them into airport outlets, rather than running the engines.

New Fees to Impact Travel

• Airport Improvement Fee

It has a number of names such as facility upgrade fee; airport tax or embarkation fee. The airport-improvement fee has one short-term impact: it makes your ticket more expensive.

Frequent-flyer tickets are far from free. Legacy airline travelers must shell out $75 if miles are redeemed without "sufficient notice." American charges $100 if miles are redeemed for a flight sooner than six days away. Since coupons cannot be redeemed on many airline web sites, the traveler must pay for the convenience of booking through a ticket agent.

Curbside Check-In Fee

Most airlines, including the nation's largest, American Airlines, charge $2 plus tip to check your luggage at the curb. Delta recently raised its charge for this service to $3, tip not included. Even some skycaps are upset about the fee hikes, since the charges have cut into some of the tips travelers leave for the workers.

American Airlines recently announced that discount ticketed passengers will be charged $15 for checked baggage. American isn't the first U.S. based airline with a checked-baggage fee. Effective June 10, Spirit passengers are paying $10 each way for the first two bags and a whopping $100 for each item thereafter. United has also started charging for the first checked bag while Continental, Delta, Northwest, United and US Airways are charging $25 to check a second bag.

As the turbulent price of oil continues to fluctuate, my advice for you is "Return to your seat and keep your seat belt securely fastened."

EDGAR HENRY is a Licensed Tax Preparer and can be reached at:
(718) 469-0183