IATA predicts heavy industry losses

THE International Air Transport Association (IATA) revised its industry financial forecast for 2008 significantly downwards to a loss of US$2.3 billion. The forecast uses a consensus oil price of $106.5 per barrel (Brent) crude. This is a swing of $6.8 billion from the previous forecasted industry profit of $4.5 billion that was announced in March and based on an average oil price of $86 per barrel.

“For every dollar that the price of fuel increases, our costs go up by $1.6 billion,” said Giovanni Bisignani (right), IATA director general and chief executive officer at the association’s 64th AGM in Turkey. The industry’s total fuel bill in 2008 is expected to be $176 billion (based on oil at $106.5 per barrel), accounting for 34 per cent of operating costs. This is $40 billion more than the 2006 bill, which was $136 billion (29 per cent of operating costs). In 2002, the bill was $40 billion, equal to 13 per cent of costs.

“We also need to take a reality check. Despite the consensus of experts on the oil price, today’s oil prices make the $2.3 billion loss look optimistic. For every dollar that the oil price increases, we add $1.6 billion to costs. If we see $135 oil for the rest of the year, losses could be $6.1 billion.

“The situation has changed dramatically in recent weeks. Oil skyrocketing above $130 per barrel has brought us into uncharted territory. Add in the weakening global economy and this is yet another perfect storm.

“Oil is changing everything. There are no easy answers. In the last six years, airlines improved fuel efficiency by 19 per cent and reduced non-fuel unit costs by 18 per cent. There is no fat left. To survive this crisis, even more massive changes will be needed quickly. Air transport is a catalyst for $3.5 trillion in business and 32 million jobs. This is an extraordinary crisis with the potential to re-shape the industry with impacts throughout the global economy. Governments, industry partners and labour must deliver change,” said Bisignani.