Airline Industry: Bush Administration is Driving Up Oil Prices

WASHINGTON – The airline industry said Thursday the Bush administration is driving up the cost of oil -- and increasing airline losses -- by purchasing unnecessarily large amounts of petroleum for the nation's strategic reserve.

"The government is out buying fuel, it appears, without much regard for the impact that it is having on prices," said James C. May, the chief executive of the Air Transport Association (search), the industry's main lobbying group.

May, speaking to reporters at the association's headquarters in Washington, said oil purchases made by the Energy Department were adding enough demand to the world marketplace to drive up the price by more than $6 per barrel, a major concern for airlines since jet fuel is their second biggest expense after labor.

Industry analysts attribute the high price of oil to tight supplies, rising demand because of the improving economy and fears about international terrorism.

Senate Democrats said in a report last March that President Bush's decision after the Sept. 11 terrorist attacks to aggressively boost oil reserves had drained supplies and caused energy prices to rise.

At the time, the Energy Department rejected that logic and said the real problems were worldwide demand growth, reduced output from major oil-producing nations and supply disruptions in Nigeria (search) and Venezuela (search). On Thursday, department spokesman Drew Malcomb said those were still the factors underlying higher oil prices.

Each dollar increase in the price of oil translates into an additional 2-3 cents per gallon for jet fuel, according to the airline trade group.

May estimated that the impact of today's high oil prices on the airline industry was "easily $2 billion," or an amount equivalent to nearly half the industry's total expected losses for 2003. He said the industry was crafting a formal complaint to the Bush administration about its fuel purchasing policies.

The Energy Department is in the process of filling the Strategic Petroleum Reserve (search), now at 638 million barrels, to its capacity of 700 million barrels.

May said that he does not oppose filling the reserve but that the government "needs to be a little more careful about how it goes about buying fuel on the open market."