fuel prices bring pain to large, small

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    Michael Thomas and Brent Leary used to jump into their cars and, without hesitation, zip off to meet face-to-face with every prospective customer of their Atlanta-based customer-management consulting company, CRM Essentials.

    These days, though, the two entrepreneurs stop and ask themselves one increasingly important question: Is this trip worth the gas?

    "We've become a lot more selective," said Leary, co-owner of the two-person, 1-year-old software and strategy company aiming for $250,000 in annual revenue. "We're qualifying the prospects we deal with because the price of gas is going up so dramatically in such a short amount of time."

    Fuel prices have surged here and elsewhere in the past month, largely because of concern the nation's refineries don't have enough capacity to replenish inventories. The current average price per gallon is $1.723 nationally and $1.588 in Atlanta, and there are expectations that prices will rise even higher through the summer.

    From the smallest of Georgia's companies to giants such as UPS, BellSouth and Delta Air Lines, the latest gas spike is bringing pain — even if some of them are passing the pain, and the rising costs, along to others.

    "It's definitely affecting our business," said Susan Miller, co-owner of AAR Racing Gear, a Woodstock-based retailer of equipment and safety gear for go-karting kids.

    The impact, she says, is threefold:

    AAR's products — helmets, racing suits and the like — are warehoused in Woodstock and Cumming, so Miller and her husband must drive back and forth.

    Much of the company's gear is sold at tracks in the Southeast where children can race mini-dragsters and karts. If gas gets too expensive, Miller worries, parents may drive their kids to fewer races.

    That would mean fewer sales for AAR, which hopes to double its annual revenue of about $80,000. The rest of AAR's sales are made online and shipped by FedEx and UPS, which add fuel surcharges to their bills.

    "It tends to get you a little bit," Miller said.

    UPS' surcharges, adjusted monthly, are one way the Sandy Springs-based company handles the changing cost of fuel. The mammoth transportation company — which operates jets, cars, vans, tractors and motorcycles and is experimenting with vehicles powered by alternative fuels — also buys fuel in bulk with long-term contracts.

    So short-term oil price fluctuations have little immediate impact.

    A "sudden rise in fuel prices doesn't affect us immediately," said Christine McManus, UPS spokeswoman. "It affects local restaurants and florists that deliver but not us."

    Allied Holdings, the biggest car hauler in the country, is another Georgia company that often uses surcharge agreements to mitigate the impact of higher fuel prices, said Chief Financial Officer David Rawden.

    However, because the Decatur-based company normally determines surcharges at the beginning of a quarter, there's a three-month delay in recovering higher costs, according to Allied's filings with the Securities and Exchange Commission.

    For telecom titan BellSouth, fuel costs are up approximately 26 percent since the beginning of the year, said spokeswoman LeAnn Hansen. But fuel is not a huge expense in the Atlanta-based company's overall cost structure. Technicians can shop around for fuel for their work trucks and can use gas cards to get the best price, she said.

    BellSouth has for years used a global positioning satellite system to dispatch technicians, helping to reduce transportation and other costs, Hansen said.

    At Alpharetta-based APAC, the largest transportation construction firm in the country, the rise in gas prices "increases our cost of doing business," said spokesman Alan Chapple.

    Higher fuel costs mean higher costs associated with running APAC's large fleet and its quarry operations — costs APAC must absorb if it's working on a fixed-price contract.

    Rising prices are having a major impact on the cost structure for carpet manufacturers and other petroleum-based product industries.

    Oil represents more than 50 percent of the cost for raw materials at Calhoun-based Mohawk Industries, said Chief Financial Officer John Swift.

    Mohawk won't say how much of a bite the rising energy prices will take out of its bottom line, but the company noted in a recent quarterly earnings report that high oil and natural gas prices would continue to "put pressure" on financial results.

    Delta Air Lines and other airlines' shares have been hammered in recent weeks because of the high cost of jet fuel, their largest expense after labor.

    Delta's shares hit a one-year low Monday after the carrier disclosed last week that its first-quarter loss would be about $50 million to $100 million higher than earlier estimates, partly because it now expects its fuel-related costs to be $47 million higher.

    Fuel prices have risen about 10 cents a gallon since the beginning of the year, said Stan Gadek, chief financial officer at AirTran Airways, Delta's top rival in Atlanta. That translates into $5 million more per quarter for fuel, he said, if AirTran didn't have contracts in place to fix the cost of about half of its fuel.

    He said AirTran also encourages pilots to use more fuel-efficient power settings to save costs.

    "We know we can't just put a $5 fuel surcharge on a $75 ticket and expect everyone to pay it," he said.

    Most airlines made matters worse for themselves, however, by mistakenly betting that oil prices would decline, UBS Securities analyst Sam Buttrick said Thursday in a note to investors.

    Most carriers didn't put enough hedging contracts in place late last year, he said.

    "This is called betting on a price decline, which is not what hedging is about," he said.

    Not all airlines have been caught in that jam. World Airways, a charter airline company based in Peachtree City, has felt very little impact from rising fuel prices, said Senior Vice President Jeff MacKinney.

    That's because in nearly every case, World's contracts — mostly with the military — are written so that "our customers pick up the fuel increase," he said.

    — Contributing: Staff writers Robert Luke, Patti Bond, David McNaughton, Dave Hirschman, Russell Grantham, Kirsten Tagami and Caroline Wilbert; Bloomberg News; and The Associated Press.
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