Fuel prices may burn airline earnings, says Iata

PUBLISHED : Wednesday, 21 March, 2012, 12:00am
UPDATED : Wednesday, 21 March, 2012, 12:00am


A global airline trade body has sounded the alarm on surging oil prices, warning that airlines would lose US$5 billion this year in a worst-case scenario in which oil prices average US$135 a barrel.

The International Air Transport Association (Iata), which represents more than 230 airlines, cited soaring fuel costs yesterday as it cut its industry profit forecast to US$3 billion from US$3.5 billion in December.

It said profits at Asia-Pacific carriers would be the highest, predicting US$2.3 billion because of strong traffic demand in China.

But airlines will see their fuel bills surge by US$55 billion to US$213 billion this year as Iata projects oil prices will rise to an average US$115 per barrel, up from the US$99 it predicted just three months ago.

'The European debt crisis is replaced by high oil prices as the No 1 [item] on our worry list,' said Tony Tyler, director general and chief executive of Iata. Brent oil prices have averaged US$120 per barrel so far this year.

When oil prices hit US$140 in 2008, airlines passed on the cost to passengers because of strong demand. 'The concern now is that the high oil prices would coincide with soft demand. It will be difficult for the airlines to pass on the cost to passengers,' Tyler added.

Cathay Pacific last week said full-year net profit fell 61 per cent, while Singapore Airlines said fourth-quarter profit was down 53 per cent and announced plans to cut staff costs.

The picture is bleaker for European airlines, with Air France-KLM, Europe's biggest airline recently reporting a net loss of Euro809 million (HK$8.28 billion), and Deutsche Lufthansa, the European No 2, announcing a Euro13 million loss compared with Euro1.1 billion profit a year earlier.

However, air cargo demand remains a bright spot, with Iata projecting a rise in the second half, citing a recent uptick in the US purchasing managers' index.

Freight forwarders in Hong Kong also expected the air freight market to improve this year, helped by a turnaround in US consumer confidence.

But the debt crisis in the euro zone is still casting a pall over any rebound in air freight and will continue to act as a brake on European carriers. Iata predicted that European carriers will face losses of US$600 million, and underperform their global peers.

Tyler reiterated the association's opposition to the emission trading scheme (ETS) by the European Union, blasting it as ill-timed and lacking a global consensus.

Reuters reported yesterday that India would urge its airlines to boycott the ETS. Beijing banned all mainland carriers from taking part in the scheme last month, and European aircraft-maker Airbus claimed Beijing had put US$12 billion worth of aircraft orders on hold this month.