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Carriers' insurance soars

Premiums, Sept. 11 jitters are up - and a tough business gets tougher

Posted: Wednesday, January 30, 2002

The timidity of travelers about taking to the air since Sept. 11 has been compounded for local carriers by the pinch of rising insurance premiums. Many carriers say they are passing on at least some of that increase to passengers.

Although insurance premiums have risen steadily for several years, the latest increase is yet another economic ripple caused by Sept. 11, company representatives said.

Mike O'Daniel, vice president and director of operations for Skagway Air Service, said his company was looking at a variety of ways to deal with increases.

"We don't like to lay off people," O'Daniel said, "so we've avoided that. We tightened our belts, and some people took voluntary leave. But we have increased ticket prices $5 on most of our fares."

"It's increased 100 percent if you take into account that we have had to cut our coverage back," O'Daniel said. "Insurance had about a 26 percent increase in 2002 but about 100 percent in 2001. Only the Sept. 11 terrorist attacks kept you from going in and banging on the (insurance agent's) desk and saying, 'This isn't right!' "

Skagway Air does most of its business in Skagway and Haines, the economies of which O'Daniel describes as "either seasonal or subsistence.

"If you raise the fare $5 and their family is five people, that's $25; pretty soon the ferry starts looking good even if it comes in only twice a week," O'Daniel said. "I don't think we're in this boat alone, but it's still painful."

Allen Shattuck has handled aviation insurance accounts through Shattuck & Grummett for years. The increase in insurance premiums is "partially due to market conditions because of a lot of losses and rates were previously at a low cycle," Shattuck said. "So some of it is cyclic, some of is bad experiences (crashes) and some of it is due to 9/11."

Higher insurance premiums also are impacting pricing at Air North, said Joe Sparling, president of the Yukon-based carrier that provides scheduled service between Whitehorse and Juneau twice a week during the winter and three times a week during the summer.

"We have had to pass that on a little bit. We felt that insurance rates were fairly steady until September - which was probably an inopportune time to be renewing. This year the increase was about 50 percent."

To pass on unforeseen charges such as fuel price changes, Air North established a surcharge it adds to tickets. The $15 surcharge per leg of travel was increased to $25 after insurance rates increased. Sparling said the $10 (Canadian) increase is about $6 in American dollars due to the exchange rate. nother Southeast air carrier, Wings of Alaska, is still considering ticket prices for the coming tourist season.

"We have not reached our renewal date for the current year, so we are not aware of what the increases will be," said John Lucas, chief financial officer for Wings. "But between various tax increases and insurance premiums, over the last three and a half years, we have seen an increase of 5 percent per year."

Wings keeps about 35 staff in Juneau year round, with up to 95 to 100 system-wide during the summer, Lucas said.

Aral Loken, co-owner of Alaska Seaplane Service, said his insurance has not gone up this year.

"I am certain we are not in the norm," he said. "However, our insurance has gone up significantly in the past."

Alaska Seaplane Service operates two scheduled flights from Juneau to Angoon, Tenakee, Elfin Cove and Pelican during winter months, and about five scheduled flights a day during the summer.

L.A.B. Flying Service, which services seven Southeast locations, has seen insurance rates go up over the last five or six years, said secretary/treasurer Agnes Bennett from the Haines office. It schedules three flights a day in winter, and six or seven to each destination in the summer.

"In 2000, ours was down, but when we renewed in October of 2002, we had a 100 percent increase - 9/11 and all that," she said. "We have not increased ticket prices so far, but will probably be forced to" in the future.

Fixed-wing craft are not the only air carriers experiencing an increase in insurance premiums.

"In general, the helicopter industry has seen increases ranging from 45 to 400 percent," said Andy Thomas, base manager of TEMSCO Helicopters. "Most companies have seen 200 to 250 percent."

TEMSCO's insurance isn't due for several months, Thomas said, but the company might decide to increase ticket prices thereafter - in the middle of the tourist season. "We will not pass on the increase 100 percent because we would end up pricing ourselves out of the market," Thomas said, "but we might pass on part of it."

Ann Chandonnet can be reached at achandonnet@juneauempire.com.



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