Prediction is dire for airlines industry

Air group puts losses in '08 at $2.3 billion

June 03, 2008|By New York Times News Service

ISTANBUL, Turkey - Noting high oil prices and the slowing economy, the International Air Transport Association sharply lowered its industry forecast for 2008 yesterday, saying it now expects a collective loss of $2.3 billion.

In March, the group had forecast a profit of $4.5 billion.

At its annual meeting here, the association urged governments to roll back regulations that they argue are damaging the industry at a time when many carriers are in a "desperate" situation.

If the price of oil, now just below $130 a barrel, averages $107 over this year, the aviation industry would lose $2.3 billion for the year, said Giovanni Bisignani, the chief executive of the group. Should it hold at $135 a barrel for the rest of the year, the industry will lose $6.1 billion.

"After enormous efficiency gains since 2001, there is no fat left and skyrocketing oil prices are changing everything," Bisignani said. "The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined."

Other problems facing the airlines, the group said, include uncertainty about the approach by the European Union and governments toward state aid and airline mergers.

William M. Walsh, the chief executive of British Airways, said: "We're definitely as an industry in a crisis situation. With a softening in the economic environment, high oil prices, it's inevitable that fares have to go up."

Walsh added that he expected to see additional bankruptcies soon.

John Leahy, chief operating officer of the European plane maker Airbus, said the sector could adjust to higher fuel prices, "but it will take several years, and how many will be left standing?"

Hartmut Moers, an analyst at the bank Sal. Oppenheim in Frankfurt, Germany, said, "The key short-term question is who is best hedged against the oil rise.

"And then further out," Moers said, "you look for the airlines with robust operations, the flexibility to adjust and the ones that are best capitalized."

In Europe, that probably means the strongest are the biggest - Air France-KLM, British Airways and Lufthansa. The situation in the United States appears more complicated given difficulties of integrating different carriers and the weak dollar, which makes oil even more expensive.

At the conference, Bisignani said: "Twenty-four airlines have gone bust in the last six months, and $130 per barrel oil is reshaping the industry even as we speak. In the next 12 months, we could face $99 billion in extra costs from oil."

He said governments must "stop crazy taxation, regulate monopolies effectively, ensure that the cost of energy reflects its true value, fix the infrastructure and change the rules of the game.

"Labor must understand that jobs disappear if costs don't come down," Bisignani added.

In particular, he criticized the European Parliament for imposing 100 amendments on an emissions trading proposal.

"We face a bill of 6.4 billion euros for a misguided and unilateral proposal that will inspire international legal battles but do very little for the environment," he said. "These are reckless decisions when the industry is in crisis and oil prices have changed the game completely."

He called for governments to develop a fair, voluntary and global emissions trading scheme. And he urged financing for innovation for biofuels and new generation engines and airframes.

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