Continued rising fuel prices are undermining the "remarkable overall progress being made by the US airline industry to return to profitability," the US Air Transport Assn. said yesterday as it called for airspace modernization to mitigate the impact."Record crude oil prices, which are expected to average nearly $70 per barrel this summer, will hamper the industry's widespread efforts to reverse the losses that have plagued the airlines in recent years," ATA VP and Chief Economist John Heimlich said in a statement yesterday.

The price of benchmark crude averaged $63.27 in the first quarter, up 27% over the same period in 2005, according to ATA, which cited data from the US Energy Information Administration. With refining costs adding a further $14.24, "the average price of jet fuel rose approximately 40 cents per gallon, from $1.45 to $1.85," year-over-year.

In spite of the challenging environment, analysts are trimming loss estimates for the first quarter on strong revenue growth owing to high demand and reductions in domestic capacity driven by the demise of Independence Air and cutbacks by Delta Air Lines (domestic ASMs down 12% in the quarter) and Northwest Airlines (ASMs down 13%).

On Monday, Merrill Lynch forecast a $1.1 billion first-quarter pre-tax loss for the eight largest passenger airlines. Analyst Michael Linenberg noted that this represents a near-50% improvement compared to "last year's $2 billion pre-tax loss" for the carriers. Revenues are expected to be up 8.5% to $24.2 billion. Merrill Lynch is forecasting a $500 million pre-tax profit for the industry for the June quarter on an underlying jet fuel assumption of $1.90 per gallon.