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Tuesday, June 3, 2008
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Aviation Industry

Crisis-hit airlines to lose $2.3b this year

(Left) Aeroplanes sit on the tarmac at Heathrow Airport in London, 2006. (right ) The file picture dated August 7, 2007 shows a Garuda Airlines plane taxing while another (front) is parked at the Soekarno Hata International Airport in Jakarta. Air travel industry body IATA predicted that airlines would lose 2.3 billion dollars this year, dramatically reversing an earlier forecast of profits nearly twice this figure.Photo: AFP

Air travel industry body IATA predicted Monday that airlines would lose 2.3 billion dollars this year, dramatically reversing an earlier forecast of profits nearly twice this figure.

The International Air Transport Association, which represents companies accounting for 94 percent of world air travel, blamed surging fuel costs for the reversal.

"The industry is in crisis, perhaps the biggest crisis we have ever faced," IATA secretary general Giovanni Bisignani said at the start of the organisation's general meeting here.

In April, the airline body had forecast profits of 4.5 billion dollars (2.9 billion euros) for the industry, but a sharp rise in oil prices since then amid slowing economic growth provoked the reappraisal.

Jet fuel is refined from crude oil, the price of which has soared above 135 dollars a barrel, and represents the biggest slice of operating expenses for airlines.

After making an estimated 40 billion dollars of losses after the attacks of September 11, 2001, the airline industry had recovered in recent years, posting healthy profits of 5.6 billion dollars last year.

Bisignani likened the industry to the Greek mythological figure Sisyphus, who was condemned to roll a boulder up a hill for eternity only to watch it roll back down when he reached the top.

"Our industry is like Sisyphus: after a long uphill journey a giant boulder of bad news is driving us back down," Bisignani said.

He warned that losses this year could total 6.1 billion dollars if the oil price stayed around 135 dollars a barrel. The figure of 2.1 billion dollars was based on oil averaging 106.5 dollars over the year.

The dire predictions came amid mounting evidence that some in the airline industry are already beginning to struggle.

Last Friday, British business-class airline Silverjet said it had suspended operations and entered administration, leaving it on the brink of collapse, after running into serious funding problems.

"Twenty-four airlines went bust in the last six months," Bisignani said, hinting that ticket prices were set to rise "to reflect cost structure."

The head of the German unit of Britain's easyJet airline said in an interview published Monday that high fuel prices would trigger a rash of bankruptcies in Europe.

"Several airlines in Europe will go out of business," John Kohlsaat told Berlin's daily Der Tagesspiegel. "Theoretically, 50 are endangered."

Kohlsaat said several carriers had been hit hard by rising fuel costs and were sliding into the red -- a development that in the end would leave only British Airways, Air France/KLM, Lufthansa, Ryanair, and easyJet.

Those best equipped to survive were the companies with a new fleet of planes, which consume less fuel than their older counterparts, and those with low operating costs.

"A new Airbus consumes 20 percent less fuel than an old Boeing 737," he said.

Speaking in Istanbul, the head of Malaysia Airlines said the company would freeze recruitment and was considering axing more routes as part of cost-cutting measures triggered by rising fuel prices.

"We are monitoring the overseas routes. If you reduce capacity, the routes' results actually improve," chief executive Idris Jala told Malaysia's official Bernama news agency.

"It is the worst time for the airline industry. We are, however, cautiously optimistic," he said.

In another sign that airlines are looking at new ways to cut their costs, 10-strong global airline alliance Oneworld said Monday that its members were considering buying fuel collectively.

Oneworld representative John McCulloh said a proposal for Oneworld, which includes British Airways, Cathay Pacific and Qantas, to buy fuel together to save on costs was to be considered at a meeting next week.

McCulloh conceded however that some members were reticient about the proposal.

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