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Fueling concern: Gas prices ground airline profits

Posted: Sunday, September 18, 2005

 

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  Jason Nunn of Grant Aviation discusses how rising fuel prices are cutting into his company's profits. Photo by M. Scott Moon

Randall Maene fuels a Grant Aviation Cessna 208B Caravan at Ted Stevens International Airport in Anchorage last week. Rapidly rising fuel prices are cutting into airline profits.

Photo by M. Scott Moon

Editor's note: The following is the first in a series of stories about what effect high fuel prices are having on the Kenai Peninsula. Monday's story will focus on impacts to the shipping industry.

Self-proclaimed Cheechako Ron Rasmussen maneuvered an airplane over the western Kenai Peninsula flats Wednesday reciting the names of some lakes and rivers below. A retired pilot from Wisconsin who now flies for Grant Aviation, he was hauling a plane full of passengers to Anchorage.

After touching down at Ted Stevens International Airport, he grabbed a cup of chili while he waited for the fuel truck to fill the plane.

 

Jason Nunn of Grant Aviation discusses how rising fuel prices are cutting into his company's profits.

Photo by M. Scott Moon

After pumping about 100 gallons into the Cessna Grand Caravan, the final price came to about $308 dollars.

Nunn said that equals about two hours of fuel.

"It has everybody worried," said Jason Nunn, Kenai Station Manager for Grant Aviation about the high price of jet fuel.

Gasoline for cars is not the only fuel that has seen increases over the last year. High jet fuel prices are putting the financial squeeze on Alaska air carriers making it hard to absorb the increased fuel costs, according to a trade organization.

According to figures provided to the Clarion by Grant Aviation, the price of jet "A" fuel at the Anchorage airport has increased from $2.53 in May to $3.08 in Sept.

"(High prices) impact the carriers across the state economically," said Karen Casanovas, executive director of the Alaska Air Carriers Association.

Recently, fuel has become the number one operating cost for many, replacing labor expenses, Casanovas said. Now, fuel is generally between 23 and 30 percent of a carrier's operating costs, she said.

Small carriers often have relatively flat revenues making it harder for them to absorb the fuel costs, she said. Such is the case with Grant.

With a new route between Kenai and Anchorage, Nunn said stiff competition in the industry keeps Grant from raising the standard $72 one-way fare price to accommodate the severe hikes in jet fuel prices.

Because Kenai is a new market, he said the community is still getting to know Grant. And the best way to help the community do this is by offering a steady, low fare, he said. This means Grant is stuck absorbing the increased cost of jet fuel, lowering its profits, he said.

Grant is new to Kenai, but has been in Alaska for almost 20 years. It started as a one-man operation called Delta Air Services serving communities in western Alaska. Now it is branching out serving, Kenai said Woody Richardson, director of operations for Grant.

While a number of airlines have come and gone from the Kenai market, Nunn said Grant plans to stay.

And that is good for Rasmussen, who has made some life changes to work for the company. He spent his career working for Air Wisconsin but recently retired. Still wanting to fly and looking for some adventure, he started looking for jobs in Alaska and landed one with Grant. With family still in Wisconsin, he commutes from his Midwest home to Alaska for work.

"I'm having a blast so far," he said as he looked out the window of one of Grant's airplanes.

Referring to his regular trip between Wisconsin and Alaska, he said, "the commute's a bugger."

But commuters between Anchorage and Kenai may keep Rasmussen his job. Nunn said the number of commuters flying on Grant is going up.

With gasoline prices high, it has become expensive to drive to Anchorage. Nunn said he has more people flying on Grant who say it is now just as cheap to fly — a bonus for the high jet fuel prices. Grant Aviation says it maintains a steady fare to stay competitive in its market.

Era says it also tries to keep a steady fare to remain competitive. Mike LeNorman, director of sales and marketing for Era, says his company's main competitor is not other airlines — it is the road. He pointed out that despite high gasoline costs for cars, it is still cheaper to drive to Anchorage.

Unlike Grant, Era started charging a fuel surcharge last year, he said. For a Kenai-to-Anchorage flight, that charge has increased from $1 a year ago to $3 now, he said.

LeNorman said Era does raise the surcharge to accommodate the fuel price increase, but it ties to make it a steady charge.

"At the end of the day there are a lot of people who are not flying (to Anchorage)," LeNorman said. "We're very conscious of our fare structure."



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