AIRLINES may report combined losses of US$6.1 billion this year, the worst since 2003, as spiraling fuel costs and slowing economies wipe out earnings.
The International Air Transport Association, whose members account for 93 percent of international traffic, cut its forecast for a fourth time in nine months at a meeting in Istanbul after oil prices rose 42 percent in six months. Airlines had a profit of US$5.6 billion in 2007, the first since the 2001 terror attacks.
"Just as we start to recover we face another crisis of potentially even greater dimension," IATA Chief Executive Officer Giovanni Bisignani said at yesterday's annual meeting. "Skyrocketing oil prices are changing everything. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined."
More than a dozen carriers have collapsed in the past six months, with UK-based business-class operator Silverjet Plc the latest casualty, grounding planes last week after running out of cash. Long-haul budget carrier Oasis Hong Kong Airlines Ltd, Columbus, Ohio-based Skybus Airlines Inc and Frontier Airlines Holdings Inc of Denver also failed in recent weeks.
Bisignani said the surge in fuel expenses has combined with slowing demand after the tightening of global credit to create a "perfect storm." The group forecast a US$4.5 billion profit as recently as April 1, Bloomberg News said.
IATA based its US$6.1 billion loss estimate on an oil price of about US$135 a barrel, equal to the record level reached on May 22. The 230-member group's official forecast is for a loss of US$2.3 billion, based on a consensus oil price of US$107.
Grim situation
"This really reflects the whole state of the industry," said John Strickland, director of aviation specialist JLS Consulting Ltd in London. "It shows the way in which the industry can rapidly turn from profit to loss. If you look at some of the other forecasts of oil at US$200 a barrel then I think it's more likely to be worse than IATA's projections."
Bisignani said the situation facing the airline industry is "grim," with oil prices obliterating the benefits of a 19-percent increase in fuel efficiency and an 18 percent fall in non-fuel unit costs since 2001.
Traffic growth is likely to slow to 3.9 percent this year, compared with 7.4 percent growth in passenger traffic in 2007, he said.
"Any time you have fuel, two years back, at US$30, US$40 a barrel, and now you have it at US$135, you put a shock into the whole system," said John Leahy, chief operating officer at Airbus SAS, the world's biggest plane maker.