AIRLINE NEWS
Wednesday, June 04, 2008
Airlines Forecast to Lose $6.1 Billion in '08
Airlines may report combined losses of $6.1 billion this year, the worst since 2003, as spiraling fuel costs and slowing economies wipe out earnings.
The International Air Transport Association, whose members account for 93 percent of international traffic, cut its forecast for the fourth time in nine months at a meeting in Istanbul yesterday after oil prices rose 42 percent in six months. Airlines had a profit of $5.6 billion in 2007, the first since the 2001 terrorist attacks.
"Just as we start to recover, we face another crisis of potentially even greater dimension," IATA chief executive Giovanni Bisignani said at yesterday's annual meeting. "Skyrocketing oil prices are changing everything."
More than a dozen carriers have collapsed in the past six months. British business-class operator Silverjet is the latest casualty, grounding its planes last week after running out of cash. Long-haul budget carrier Oasis Hong Kong Airlines; Columbus, Ohio based Skybus Airlines; and Frontier Airlines Holdings of Denver also failed in recent weeks.
IATA based its $6.1 billion loss estimate on an oil price of about $135 a barrel, equal to the record level reached May 22. The 230 member group's official forecast is for a loss of $2.3 billion, based on a consensus oil price of $107. The group forecast a $4.5 billion profit as recently as April 1.
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"This really reflects the whole state of the industry," said John Strickland, director of aviation specialist JLS Consulting in London. "It shows the way in which the industry can rapidly turn from profit to loss. If you look at some of the other forecasts of oil at $200 a barrel, then I think it's more likely to be worse than IATA's projections."
Airline losses since the Sept. 11, 2001, terrorist attacks have totaled more than $36 billion, led by a $13 billion deficit the year of the attacks. The loss in 2003 was $7.5 billion.
Bisignani said the situation facing the airline industry today is "grim," with oil prices obliterating the benefits of a 19 percent increase in fuel efficiency and an 18 percent fall in non-fuel unit costs since 2001. Traffic growth is likely to slow to 3.9 percent this year, compared with 7.4 percent growth in passenger traffic in 2007, he said.
Mergers won't be sufficient to safeguard earnings unless carriers also cut seating capacity, Steven Udvar-Hazy, chief executive of International Lease Finance, the world's biggest aircraft lessor, said in an interview.
"Either airlines themselves have to reduce capacity or find ways to come together and figure out a better way to handle supply," Udvar-Hazy said. "There's a false premise in the U.S. that consolidation will solve problems."
Source: washingtonpost.com
The International Air Transport Association, whose members account for 93 percent of international traffic, cut its forecast for the fourth time in nine months at a meeting in Istanbul yesterday after oil prices rose 42 percent in six months. Airlines had a profit of $5.6 billion in 2007, the first since the 2001 terrorist attacks.
"Just as we start to recover, we face another crisis of potentially even greater dimension," IATA chief executive Giovanni Bisignani said at yesterday's annual meeting. "Skyrocketing oil prices are changing everything."
More than a dozen carriers have collapsed in the past six months. British business-class operator Silverjet is the latest casualty, grounding its planes last week after running out of cash. Long-haul budget carrier Oasis Hong Kong Airlines; Columbus, Ohio based Skybus Airlines; and Frontier Airlines Holdings of Denver also failed in recent weeks.
IATA based its $6.1 billion loss estimate on an oil price of about $135 a barrel, equal to the record level reached May 22. The 230 member group's official forecast is for a loss of $2.3 billion, based on a consensus oil price of $107. The group forecast a $4.5 billion profit as recently as April 1.
ad_icon
"This really reflects the whole state of the industry," said John Strickland, director of aviation specialist JLS Consulting in London. "It shows the way in which the industry can rapidly turn from profit to loss. If you look at some of the other forecasts of oil at $200 a barrel, then I think it's more likely to be worse than IATA's projections."
Airline losses since the Sept. 11, 2001, terrorist attacks have totaled more than $36 billion, led by a $13 billion deficit the year of the attacks. The loss in 2003 was $7.5 billion.
Bisignani said the situation facing the airline industry today is "grim," with oil prices obliterating the benefits of a 19 percent increase in fuel efficiency and an 18 percent fall in non-fuel unit costs since 2001. Traffic growth is likely to slow to 3.9 percent this year, compared with 7.4 percent growth in passenger traffic in 2007, he said.
Mergers won't be sufficient to safeguard earnings unless carriers also cut seating capacity, Steven Udvar-Hazy, chief executive of International Lease Finance, the world's biggest aircraft lessor, said in an interview.
"Either airlines themselves have to reduce capacity or find ways to come together and figure out a better way to handle supply," Udvar-Hazy said. "There's a false premise in the U.S. that consolidation will solve problems."
Source: washingtonpost.com
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