IATA lifts airlines' loss forecast to $3 bln

Reuters
Mon Jun 5, 2006 3:03 PM BST

PARIS (Reuters) - Soaring oil prices will mean losses of $3 billion for global airlines this year, industry lobby group IATA said, downgrading its forecast from $2.2 billion in losses as fuel woes outpace cost-cutting efforts.

The figure is still below the loss of $3.2 billion for 2005, but IATA Chief Executive Giovanni Bisignani told the group's annual meeting in Paris on Monday that uncertainty remained.

"Oil is the wild card. Prices are racing ahead of efficiency gains and robbing our profitability," he said in a speech on the state of the industry.

"The industry fuel bill will top $112 billion this year -- $21 billion more than 2005," said the International Air Transport Association, which represents 261 airlines handling 94 percent of the world's scheduled air traffic.

The losses contrast with record orders for new aircraft, reflecting a shift in industry power towards Asia and the Middle East where demand is up -- even as half of the major loss-making U.S. domestic airlines are in bankruptcy protection.

Many airlines are upgrading fleets to save money on fuel.

U.S. carriers have suffered far worse than the Europeans due to slowed air travel after the September 11, 2001 hijacks in the United States and the rise of budget carriers such as Southwest, which rendered labour deals at traditional firms unsustainable.

Nonetheless, global revenue gains of 10 percent in each of the last three years have helped buffer airlines, as have cost-cutting efforts, which Bisignani said have reduced non-fuel costs by 13 percent overall since 2001.   Continued...

"(Such) efforts have moved the breakeven fuel price from $14 per barrel to $50," he said, illustrating the dilemma for carriers with crude oil prices now above $70 a barrel and near to record levels.

LAMBASTING OIL COMPANIES, GOVERNMENTS

With the breakeven point still rising, airlines could return to profit in 2007 if oil prices were to stick to an average of $66 a barrel this year, he said. But for now prices are $6 higher.

The head of Italian oil company ENI (ENI.MI: Quote, Profile, Research) held out little hope of significant relief any time soon.

"We think there's a lot of oil around, and so it's possible the oil price will fall in coming months. But a lot depends on the geopolitical situation, and in any case we don't see it falling much," ENI Chief Executive Paolo Scaroni told reporters.

Fuel is expected to make up 26 percent of airlines' average costs in 2006, against 22 percent the previous year, IATA said.

Its outspoken CEO accused oil companies of raking in $14 billion in extra refining profits without improving services. And he told airlines that governments need to remove barriers that are holding back the sector's efforts to be more efficient.

"We have cut our labour costs by 33 percent, and last year we had the lowest accident rate in our history," Bisignani told reporters. "The airline system is working effectively. Now it is time for others to join us with the same speed."

Bisignani noted IATA's drive to do away with paper tickets by the end of 2007 but said governments remained an obstacle to taking similar cost-saving steps in the air freight sector.   Continued...

"Not a single government has all the legislation in place to support e-freight. In today's Internet world, this is an embarrassment."

Rising charges at airports, some of them government-owned such as in Paris, which is in the process of a partial privatisation, are also a problem, he said.

Airlines are incensed by French plans to tax flights to pay for aid to poor nations.

IATA complains governments still treat aviation as a luxury, whereas to many it is part of everyday life.

Environmentalists want airlines to do their part to guard against emissions blamed for global warming.

The European Union's most senior transport official, European Commission Vice President Jacques Barrot, defended the trade bloc's record on liberalisation.

"The cumulative losses of international airlines in IATA in the past five years reached $42 billion, but European companies made $1.3 billion in profit last year," he told IATA members.