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It is hardly news to anyone who has traveled by air in the US over the past year that rising oil prices are wreaking havoc on the airline industry. However, it is not generally appreciated how bad things really are, how fast and drastically the situation is worsening, or what may lie ahead in terms of airline economics and policy-including a drastic restructuring of the industry and possible federal re-regulation.
Jet fuel costs are increasing faster than oil prices, having more than tripled in five years, and are forecast to increase by another 50% in 2008. In 2002, US airlines spent $13 billion on aviation fuel; in 2008 they will likely spend in excess of $61 billion, Fig. 1.
Historically, airline fuel costs represented about 15-18% of total operating costs-a distant second to labor costs, which accounted for 25-30% of total costs.
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