By Andy Owens
Managing Editor

If the economic downturn had happened a little sooner, Charleston might have held on to its notoriously high air fares indefinitely, an AirTran Airways executive told an Economic Outlook Conference this month.

Kevin Healy, AirTran’s senior vice president for marketing and planning, said high oil prices have hammered the airline industry, and if the company wasn’t already in the Charleston market, the expansion would have been difficult given the rising cost of air fuel.

“It would have been hard to come here now,” Healy said, pointing to numbers that every airline across the country is struggling with.

For every $1 increase in crude oil prices, the company’s fuel expenses go up $10 million, Healy said. This year AirTran has spent $200 million more than it planned to on fuel costs and $400 million more than last year.

“The economy is really driven by fuel because fuel is a cost index for everything,” Healy said.

When fuel was at $20 a barrel, airlines could do a lot, including expanding to new destinations and placing orders for new planes. If the airlines needed to increase demand, they would simply reduce costs. In 2003, AirTran placed the largest order for jets the

Boeing Co. received that year and the largest order for planes in the United States, Healy said.

As oil rose from $20 a barrel to $40 a barrel, Healy said airlines could still do a lot, but that all changed in 2007.

“We’re now trading at $100 a barrel and budgeting higher than that,” Healy said. “That’s going to change everything we’re going to do.”

For years, many airlines have been adding surcharges to ticket prices to offset rising fuel prices. Numbers from the Bureau of Transportation Statistics show monthly fuel costs have risen by $1.352 billion from September 2003 compared to September 2007, the latest figures available for all domestic flights in the U.S., and the sky may not be the limit.

In March, airline stocks plunged as a Wall Street analyst predicted that the rising cost of fuel would wipe out many of the gains reached through bankruptcy restructuring at airlines such as Delta and Northwest, which are trying to broker a merger.

Since 2004, the airline industry has been hit by high-profile bankruptcy cases, including Delta, Northwest, ATA, FLYi, Hawaiian Airlines and US Airways.

United Airlines, which filed for bankruptcy in 2002 and emerged in 2006, based part of its reorganization and operating capital on oil prices dropping to $50 a barrel.

When AirTran entered the Charleston market in May 2007, it had an almost immediate impact. The cost of fares for all carriers plummeted and passenger activity increased 20% to end the year, according to the Charleston Aviation Authority.

“I don’t think anyone on Team Charleston has been surprised,” Healy said. “They were so eager about what was going on in Charleston. It’s always been an issue to me of when, not if, we were to fly to Charleston.”

The combined support from the business community and the Charleston Metro Chamber of Commerce helped fuel the discount airline’s entry into the market, he said.

This year was expected to be even bigger than 2007 because AirTran would be in the market for a full 12 months instead of just over six months, but the economic downturn has put every airline’s projections in question.

AirTran is probably looking at total growth going from 10% to 5% and then possibly even to no growth for some time, Healy said.

Other attempts by discount airlines to enter Charleston failed because low prices aren’t enough to entice most travelers, he said.

AirTran’s model continues to find a way to match the product it is offering to the market it hopes to enter. When added to heavily discounted prices, that approach has been largely successful. AirTran now flies to 58 cities, including seven that it added last year.

“We have to have a product that matches that to be successful,” Healy said.

Healy said he thinks that method will see AirTran through several turbulent years of rising fuel prices and an economy that might make travelers think twice about the expense of flying when other options are available.

“We do still believe there will be opportunities if we manage our business well,” Healy said. “We still believe that we control our own successes. I think recognizing that is important.”

Andy Owens is managing editor for the Business Journal. E-mail him at aowens@scbiznews.com.

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