Airlines say they can't afford another huge oil price jump

The 25% run-up in oil prices over the past month that has motorists again scrutinizing gas station price signs heading into the Memorial Day weekend also has U.S. airline managers beginning to worry about another big cost jump on top of double-digit drops in demand and revenue.

The CEOs of both AMR, parent of American Airlines, (AMR) and rival Southwest Airlines(LUV) said Wednesday that market fundamentals — including a glut of crude oil on the world market — don’t support prices as high as $62 a barrel, a six-month high. But both American’s Gerard Arpey and Southwest’s Gary Kelly conceded that energy prices right now aren’t being driven by market fundamentals.
“I don’t understand why oil went to $150 a barrel last year,” Arpey said at a news conference following AMR’s annual shareholders meeting in Fort Worth. “And I can’t imagine in a global recession the circumstances that would drive oil back to those levels again.”

Kelly, at a separate news conference after Southwest’s annual meeting in Dallas, said the unusually large supply of oil in the world currently — the result of a 7.6% drop in global demand from this time a year ago — points to investors “looking to commodities as an inflation hedge.”

USA Today