Stricken airlines face $6bn loss

The airline industry will lose $6,1-billion this year if the oil price remains at record levels, with carriers facing a worse crisis than after the terrorist attacks of September 11 2001, the International Air Transport Association (Iata) has warned.

Airlines will move from a profit of $5,6-billion last year to a loss of $6,1-billion this year if oil is trading at $135 a barrel, according to forecasts from the global airline body. Giovanni Bisignani, its chief executive, said the industry was “struggling for survival”, with 24 airlines going out of business since January.

“The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined,” he told hundreds of airline executives at the Iata annual general meeting this week.

Iata said the industry’s fuel bill would rise by at least $40-billion to $176-billion, wiping out last year’s profit seven times over. The figure is based on a more conservative average oil price of $107 a barrel.

British Airways, which is one of only 14 airlines in the world with a profit margin of more than 10%, has admitted it could move from a profit of $1,7-billion to a loss over the next two years despite its robust cost base and balance sheet. The rest of the industry is less resilient and operates on an average profit margin of just over 1%, underlining the threat posed by a sudden spike in fuel costs.

The outlook for airlines worsens if current oil trends are factored in.

If oil costs $107 a barrel, the industry would lose $2,3-billion this year, but the current level of $135 a barrel would push that deficit to $6,1-billion, Iata warned.

“Just as we started to recover, we face another crisis of potentially even greater dimension. Our industry is like Sisyphus. After a long uphill journey, a giant boulder of bad news is driving us back down,” said Bisignani.

There was some respite for the industry yesterday as oil fell below $126 a barrel.

In the Istanbul Declaration announced by Bisignani yesterday, Iata urged governments to drop airline ownership restrictions, such as limiting foreign control of United States airlines to no more than 25% of their shares, and slash aviation taxes, such as air passenger duty in the United Kingdom. “Airlines are struggling for survival and massive changes are needed,” he said.

Bisignani said the oil crisis would force governments to consider scrapping international flight agreements, which limit foreign shareholdings in airlines and restrict access to lucrative routes such as London to Hong Kong. The Open Skies agreement between the US and the European Union liberalised the transatlantic airline market this year, but talks on a second-stage agreement have stalled over the issue of lifting US ownership restrictions.

“We cannot fly to new markets without an international agreement. We cannot look beyond national borders to try new ideas, grow our business, access global capital or merge and consolidate. We fight crisis after crisis with our hands tied because flags, not brands, define our business,” said Bisignani.

Profitable airlines have raised fares and add-on fees over the past month, while the less financially secure, including UK-based Maxjet, Eos and Silverjet, have grounded their fleets and called in administrators.

Bisignani warned there was no room left for cost cuts because airlines had increased fuel efficiency by 19% and reduced non-fuel costs by 18%. “There is no fat left,” he said.

Ryanair, which was not at the conference, will report annual results today. It is expected to announce profits of about $764-million, but that figure could halve over the next 12 months. According to reports, Europe’s largest low-budget carrier might ground 10% of its fleet this winter to cut costs. —

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