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Airlines start to feel Colonial Pipeline pinch

Airlines start to feel Colonial Pipeline pinch
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Fuel supply shortages from the Colonial Pipeline ransomware attack are hitting airlines at a time when the industry is just beginning to emerge from the coronavirus recession.

The 5,500-mile pipeline services seven airports in the eastern part of the country, prompting some carriers to alter routes as a way to maintain access to jet fuel.

And while Colonial is optimistic that its operations will return to normal later this week, an extended disruption could force airlines to consider passing the added costs along to passengers in the form of higher airfares heading into the summer travel season.

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“The material impact of the cyberattack will depend primarily on the duration of supply shocks,” said Kevin Kennedy, an analyst with IBISWorld, a market research firm.

“Fuel purchases typically represent the most significant expenses for commercial airlines,” he said, adding that the commodity has historically accounted for almost 20 percent of operating expenses for airlines.

“A prolonged disruption of the fuel supply will undoubtedly affect profitability,” Kennedy said.

American Airlines reported that two daily long-haul flights out of Charlotte, N.C., a major hub for the airline, have already been impacted by Friday’s attack on the pipeline. The flights — one to Honolulu, the other to London — are currently expected to return to their original schedule on Saturday. 

“We are closely monitoring the situation and working around the clock to ensure that we have an adequate supply of fuel across our network,” a spokesperson told The Hill.

Delta Air Lines, Southwest Airlines and JetBlue Airways said the Colonial hack hasn’t had an impact on their operations. United Airlines did not respond to a request for comment.

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Industry experts predict that airlines should be able to weather this for about a week. After that, disruptions are more likely.

Helane Becker, managing director at the investment firm Cowen Inc., said airports keep a supply of fuel on-site that should last through the expected duration of the Colonial shutdown.

“There is about a week’s worth of supply at the busiest airports. The airports can try to truck supply in if there are long delays in getting the pipeline up and running again or they can tanker jet fuel,” she said.

If the pipeline is back up by the end of the week, Becker said, “it should not prove to be a problem for the airlines.”

The International Air Transport Association (IATA) said various airports, mainly in the East and Southeast, have issued low fuel alerts.

“At present IATA does not foresee any major disruption to flight operations, as contingencies such as fuel tankering ... or refueling stops en-route are feasible, but costly alternatives, given the high density of airport coverage in the US,” the association said in a statement.

Airlines for America, an industry group representing the major U.S. airlines, said “the vast majority of U.S. airports have several days’ worth of jet fuel on hand,” adding that some carriers are taking on extra fuel at airports that are not impacted.

The Biden administration said on Monday it is monitoring the shortages and evaluating what actions the federal government can take to mitigate the shortage.

Colonial accounts for almost half of the East Coast’s fuel supply and ships 2.5 million barrels of gasoline, diesel and jet fuel daily. In addition to the concerns about airfares, the ransomware attack has sparked fears of surging gas prices and shortages in states like Alabama, Florida and Georgia.

Airline passengers overall are still paying less for air travel than they were pre-pandemic, giving carriers some wiggle room to build in any price increases if the pipeline is not back to normal operating capacity by Friday.

Airfare prices are 24 percent cheaper than they were before the pandemic hit, according to data from Airlines for America.

The cyberattack comes as air travel is just starting to bounce back. The Transportation Security Administration (TSA) had its busiest day since the start of the pandemic on Sunday, with more than 1.7 million passengers screened at checkpoints.

Air travel is also expected to pick up in the summer with Americans traveling again for vacations, along with the slow return of business travel. President BidenJoe BidenBiden prepares to confront Putin Ukrainian president thanks G-7 nations for statement of support Biden aims to bolster troubled Turkey ties in first Erdoğan meeting MORE has set a goal of 70 percent of U.S. adults receiving at least one coronavirus vaccine dose by the Fourth of July.

So long as the Colonial Pipeline is back up and running in the next few days, experts say, passengers won’t have to pay for the fuel shortage.

“Airlines will likely absorb costs immediately to prevent price hikes that would ultimately reduce demand. However, if the situation continues beyond an assumed resolution period, these companies will be forced to reflect the financial impact of the attack through increased ticket prices,” Kennedy said.