IATA warns that the spiralling price of oil threatens to plunge the industry into the red again this year despite massive restructuring among full service carriers.
"This year was meant to be the first profitable year for our industry this century," said IATA director general Giovanni Bisignani in his state of the industry address to delegates at the association's 60th annual general meeting (AGM) in Singapore in early June. Just three months previously, IATA was optimistically forecasting an industry operating profit for 2004 of $3 billion, describing the initial outlook for the year as "encouraging".
Those projections were based on an oil price of $30 a barrel. By the time of the AGM, the price had soared to $40. Bisignani estimates that every $1 per barrel rise in the price of oil adds $1 billion to the industry's fuel bill. At $33, the industry breaks even, he said, and makes a collective loss of $3 billion at $36 a barrel.
Senior airline bosses are pessimistic on the prospects of the price falling anytime soon. Glenn Tilton, chief of United Airlines and a former oil industry executive, fears the price will remain at the $35-40 level for some time. Plenty of carriers are hedging and some are adding surcharges to ticket prices to relieve the pain. However, as Rod Eddington, chief executive of British Airways noted, his carrier's surcharge of £2.50 ($4.60) for each one-way journey only covers half of the extra fuel cost.
The industry is growing accustomed to having to cope with the cycles and the shocks, says Bisignani, although he points to positive traffic figures in the first quarter of 2004. "But it is still only 6.5% above the levels of 2001 - at least two years of growth have been lost," he claims.
Bisignani recognises the massive strides many carriers have taken in radically restructuring their businesses to regain profitability. The agenda has shifted from "firefighting to building a new industry structure", with the key theme being to "simplify the business", he says. IATA is tackling this through simplifying airline commercial practices and through its relentless campaign for cost reductions among suppliers like airports and air traffic suppliers.
However, Bisignani concedes that little has changed in the past year when it comes to simplified regulatory frameworks. Governments "must give us the commercial freedom to run our businesses", he says, with access to global capital, open markets and the ability to consolidate and co-operate. "There is nothing sexy about it. Every other business has access to these commercial tools."
Bisignani was particularly scathing of Brussels and Washington over their discussions on an open aviation area, which was "more about politics than business". He added: "The focus on great new ideas is lost. Marginal progress is a long way from the leadership we need."
MARK PILLING SINGAPORE
Source: Airline Business
