IATA says North American carriers will bear brunt of $7.4bn deficit as average oil price continues to escalate
The International Air Transport Association (IATA) has raised its forecast for airline net losses this year by almost 25% to $7.4 billion, blaming a $10 – or 21% – jump in the expected average price for a barrel of oil this year to $57.
This is IATA’s second revision to the forecast since April, when it predicted global losses of $5.5 billion this year. That was revised to $6 billion in May on the assumption that each barrel of oil would cost $47.
IATA director general and chief executive Giovanni Bisignani says the forecast of a $1.4 billion increase in losses factors in an improvement in operational efficiencies, without which there would be an extra $1 billion in losses for every $1 increase in the oil price.
“Oil is once again robbing the industry of a return to profitability,” he says. “Each dollar added to the price of a barrel of oil adds $1 billion in costs to the industry. Cost reduction and efficiency gains have never been more critical.”
North American carriers will bear the brunt of this year’s losses. “The regional picture is very different,” says Bisignani. “For European carriers, we expect a break-even year, and in Asia the airlines should make roughly $1 billion in profit. In the USA, however, losses are expected to be over $8 billion.”
Part of the disparity is because of cost structure, he says. “Despite a 34% improvement in efficiencies since 2001, US carriers have to contend with two major issues: low-cost carriers and the cost of labour.
“There are low-cost carriers elsewhere, but, as in Europe, they are not attacking the major hubs. There is no low-cost competition in Heathrow or Frankfurt, but in the USA that competition exists and affects yields.
“Also labour costs are 38% of the operating costs – and 25% of total cost – for US carriers. This compares to 30% in Europe, 20% in Asia and less than 15% in China.”
But fuel is the major hurdle, with total airline expenditure this year expected to reach $97 billion compared with $62 billion in 2004 and the $44 billion spent in 2003. On top of higher crude prices, refinery costs have also risen. “The cost [for refined jet fuel] has grown from $6 to $17 a barrel, on top of the $57 charged for Brent [oil],” says Bisignani. “I question the motives of the oil companies – they are making billions while we lose billions.”
DARREN SHANNON/WASHINGTON DC
Source: Flight International
