Small airlines face big fuel prices after oil decontrol
When Delta Airlines dropped service between Boston and Presque Isle, Maine, Bar Harbor Airlines, a commuter line, took over. But Bar Harbor's Convair 600s and Beechcraft 99s, unlike Delta's 727s, can't make the round trip on one tank of fuel.
And since the amount of fuel Bar Harbor needs in Presque Isle is too small for a contract from a major supplier, the carrier buys what it needs retail from the airport servicing agent -- for 20 cents a gallon above what it usually pays.
This scenario, though especially typical of New England, is taking place all over the country.
Atlantic Southeast Airlines has started flying between Columbus, Ohio, and Atlanta since the departure of Southern and Easten airlines from those routes. But unlike those carriers, Atlantic Southeast can't get contract prices: Its planes tank up for $1.20 a gallon at the Atlanta airport. Major carriers are generally paying 80 to 90 cents a gallon.
Air Oregon, for example, a medium-to- large commuter line based in Portland, has recently taken over several markets from the larger carriers. But even though the carrier gets much of its fuel under a contract signed before prices were decontrolled in February 1979, its retail fuel purchases at smaller airports have raised the fleet's average price to $1.30 a gallon.
Deregulation of the airline industry has hit the smaller, so-called commuter airlines at the same time as decontrol of jet fuel prices. The commuter lines basically favor deregulation, which has meant a lot of growth for many of them. But decontrol of fuel has shot prices into the stratosphere. And commuter lines have so little guarantee of supply that "just a hiccup" in the fuel situation, such as ast year's shortages, could bankrupt many of them, says an industry spokeswoman.
Since deregulation in October 1978, airlines have had greater freedom to fly where they want. As major airlines leave the smaller markets, less profitable for them, commuter airlines have taken over. But the commuter lines generally don't use enough fuel to get it on contract. They go instead to the spot market or they buy retail from fixed-base operatos, the airport "filling stations" which srvice small carriers and pleasure craft.
Short-haul carriers also contend with higher costs per mile than transcontinental flights. Much of the expense of a flight is incurred in takeoff and landing, and short trips don't have much cruising time to balance out the expensive ends. Commuter airlines, therefore, can't offer many bargains. They're in continual danger of pricing themselves out of the market, and sending customers back into their cars. Example: It has been possible lately to fly from New York to Miami on a major carrier for $79; but New York to Burlington, Vt., on a commuter line has been $84.
Deregulation has wiped out the fuel allocations small airlines used to count on. Now smaller lines particularly are having to devote considerable staff time to dickering with fuel suppliers. (Major carriers have long had fuel departments.) Commuters lines from nine states took part in a recent conference in San Francisco, sponsored by the Civil Aeronautics Board and the US Department of Energy to learn how to negotiate with oil companies. But an official at one commuter line observes privately that since last year's fuel shortages, oil company sales representatives have been under orders to initiate no new contracts with smaller airlines. The general perception is that oil companies are diverting supplies from sale under contract to sale on the spot market.
However, as commuter lines have "grown up" into regional carriers with more and bigger aircraft and passenger loads, they have acquired the muscle to get fuel on contract trhough brokers.
Jet fuel, like other petroleum products, is plentiful now. But to head off possible shortages, the Commuter Airline Association (CAA) is pushing to have jet fuel for small cities included in the US Department of Energy's emergency allocations program, which guarantees fuel for essential purposes such as agricultural machinery and intra-urban transit.
Actually, says Tulinda Deegan, vice-president for government relations at CAA , it's because there isn't a crisis that her association is having trouble getting the federal government to respond. "They want smoking guns. They'll ask, 'What lines have gone out of business [for lack of fuel]?' When five or six commuters go bankrupt, they'll do something."
The Airline Fuel Corporation may be another way to ease the squeeze. The idea is that AFCO will serve as a sort of "matchmaker" to bring carriers and suppliers together; it might eventually get into cooperative buying and selling of fuel.
The AFCO concept has not been universally embraced, however. Bob Riddle of Air Oregon feels that his airline probably won't join because the cost of membership would outweight the fuel savings.