Fuel cost key to survival, says Swire

Hughes-Hallett sees offshore vessels business as 'perfect hedge' to airline industry with high oil prices driving exploration and development

PUBLISHED : Thursday, 11 April, 2013, 12:00am
UPDATED : Thursday, 11 April, 2013, 5:33am

Fuel price is the biggest issue facing the airline and shipping industries, the chairman of John Swire & Sons said yesterday.

James Hughes-Hallett said fuel costs meant "survival or failure" for airlines, while in the shipping sector, high fuel prices were generating "excitement" about more fuel-efficient eco-ships.

But high oil prices also led to an increase in offshore exploration and development, which benefited Swire's burgeoning offshore vessels business as it meant higher charter rates and utilisation levels for its fleet.

"We love the offshore business. It is a perfect hedge to the airline business," Hughes-Hallett said, delivering the seventh Singapore maritime lecture.

But he added Swire's offshore operation "is a lot smaller than the airline business" although there were 30 ships on order. "We could see much further growth."

Swire has an offshore fleet of about 75 specialist vessels including platform support and anchor handling tugs.

Swire Pacific Offshore generated a net profit of HK$917 million last year on revenue of HK$4.86 billion. By comparison, Cathay Pacific Airways and related airline operations contributed HK$412 million in net profit to Swire Pacific on a turnover of HK$99.38 billion.

On the oil price over the next few years, Hughes-Hallett said: "I think it will go up. Apart from that, I've got absolutely no idea at all. It would be lovely to think it won't go up."

Joachim Skorge, the regional head of Asia and managing director, operations, at DNB Bank in Singapore, said oil prices would average US$107 per barrel this year. Other analysts have forecast higher levels.

Speaking at the Sea Asia conference earlier, Skorge said spending on global oil and gas exploration and production activity would rise 8 per cent to US$623 billion this year, driven by higher oil prices and exploration costs.

Pointing to other similarities and differences between the airline and shipping industries, Hughes-Hallett said there was a risk of worldwide shortage of airline pilots, "especially as China's airline sector gears up".

While there is a shortage of seamen, patchy implementation of maritime regulations is "damaging to seafarers and shipowners alike".

Hughes-Hallett said there had been a shift in cargo from air to ocean, compounded by product miniaturisation.

Ocean freight volumes had grown about 10 per cent over the past three years, while air cargo rose 1 per cent over the same period.

Similarly, the smartphone had replaced the watch, computer terminals and other gadgets.

But the slump in the shipping industry, with the delivery of vessel capacity outpacing the growth in cargo demand, would require "another two years of digestion" before the sector recovered, Hughes-Hallett said.