Airlines seen to lose $2.3B in '08 due to soaring fuel costs


Posted at Jun 02 2008 11:43 PM | Updated as of Jun 03 2008 07:43 AM

Agence France-Presse

The International Air Transport Association (IATA) said Monday its member airlines faced losses of 2.3 billion dollars this year due to soaring fuel costs, dramatically reversing a forecast of profits nearly twice that figure.

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

IATA represents around 240 air carriers accounting for 94 percent of world air travel.

In April, it forecast profits of 4.5 billion dollars (2.9 billion euros) for the industry. But as oil prices soared above 135 dollars a barrel, operating costs have rocketed -- forcing a radical revision.

After sustaining losses of around 40 billion dollars after the September 11 attacks in the United States in 2001, the airline industry has recovered in recent years, posting healthy profits of 5.6 billion dollars last year.

"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 oil stays around 135 dollars a barrel. The figure of 2.3 billion dollars was based on oil averaging 106.5 dollars over the year.

On Monday, oil changed hands at around 126 dollars.

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

Last Friday, the British reduced-fare business-class airline Silverjet 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, adding that ticket prices were set to rise "to reflect (the) cost structure."

British Airways head Willie Walsh agreed, telling a discussion panel: "I expect that the fares will increase."

Jean-Cyril Spinetta of Air France-KLM expected low-cost carriers to struggle but nonetheless survive, even if some have to bow out, especially in Europe.

"I'm not saying the low-cost model will disappear, but in Europe lots of low-cost (carriers) will disappear," he said.

The head of the German unit of British carrier EasyJet said in an interview published Monday that high fuel prices would trigger a rash of airline 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," Kohlsaat said.

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

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, Qantas and Japan Airlines -- to buy fuel together to save on costs was to be considered at a meeting next week.