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Expensive Fuel Brings Change to Transportation Industry


As rising fuel costs drive up the cost of transportation, the transportation industry itself is being forced to change. America's biggest carmaker is closing factories where its largest vehicles are made, and expanding plants that build small cars. Airlines are raising fares, cutting services, merging with other airlines or going bankrupt. On the other hand, railways are in greater demand as an alternative. Kent Klein has more in this report on the rising cost of transportation. (Part 4 of 5)

Terry Schachstschneider is about to lose his job. He works at the General Motors factory in the north-central U.S. city of Janesville, Wisconsin, building some of GM's biggest and least-fuel-efficient vehicles. Sales are down, and the company will close the plant soon.

"Well, they have three plants making these big things, the gas mileage [fuel economy] is terrible on them," he says.

America's two largest car companies, General Motors and Ford, have recently posted huge losses and slumping U.S. sales. So chairman Rick Wagoner says G.M., like Ford, will close some factories where its least fuel-efficient vehicles are made.

"We cannot sit back and wait for U.S. conditions to improve," he says. "We need to be proactive and even take some very tough actions to ensure our survival and success."

The auto industry is shifting its focus to smaller, more fuel-efficient cars, and developing vehicles that run on other sources of energy.

The world's airlines are also going through major change, largely because of high fuel prices. Delta and Northwest Airlines are proposing a merger that would create the world's largest airline. Many U.S. airlines are cutting flights and service while raising fares. Several airlines have announced big staff cuts, including Australia's usually-profitable Qantas. It plans to trim 1,500 jobs next year. The International Air Transport Association says 24 airlines collapsed in the first half of this year.

Airline analyst Philip Baggaley, with Standard and Poor's in New York, says America's airlines, especially the big ones, are in financial trouble, and more could go out of business.

"If the fuel prices stay high, the economy remains weak, we could see some bankruptcies some time in 2009," he says.

Glen Tilton, the chief executive officer of one of the biggest U.S. airlines, United, recently told Congress he sees it the same way.

"It is, for us in our industry, a crisis," he said. "It really can not be called anything else. We are going to lose 30,000 jobs in our industry this year as a result of this extraordinary pressure from these unprecedented oil prices."

Analyst Philip Baggaley says the picture is somewhat brighter outside the United States."On the other hand, a lot of the big Asian, European and Middle Eastern airlines are pretty strong financially," he says.

Even so, high oil prices are causing challenges for Korea's two major airlines - Korean Air and Asiana Airlines. Both airlines' sales are up but high fuel costs have driven their profits down. So both are cutting flights and raising prices.

In some parts of the world, train travel is becoming more popular.

For years the huge, subsidized rail system was a symbol of socialist India, keeping fares low but piling up huge losses. Since then, Indian Railways has offered bigger, better trains, to carry larger freight loads and more passengers. Last year, Indian Railways turned a profit of more than $6 billion.

Sudhir Kumar is leading the railways' turnaround. He says soaring fuel prices make freight trains more efficient than trucks.

"Rising oil prices may be bad news for the country, and for the trucking industry, but it is wonderful news for Indian Railways, because if my competitors consume nine liters of diesel per unit of transport, I consume only one," he says.

Trains may be one of the most fuel-efficient ways to haul freight. One major U.S. railroad claims that its trains can move a ton of freight 681 kilometers on four liters of fuel.

Meanwhile, the main U.S. passenger rail carrier, government-funded Amtrak, has had a nearly 17 percent increase in riders over the past two years.

Freight train usage is also growing. But congestion is a major obstacle to greater reliance on trains in the U.S. Passenger and freight trains share tracks in the United States. One-track rail lines force trains to wait hours. Experts predict the situation will get worse.

One problem is that about 40 percent of all U.S. rail freight goes through Chicago. Trains can take as long as two days to move through the city.

Some experts believe a solution would take decades to implement and would cost billions of dollars. Others say larger, more modern train cars and newer computer systems would ease the strain.


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