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Global airlines fear oil rally as losses mount

Global airlines fear oil rally as losses mount
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First Published: Mon, Jun 08 2009. 04 01 PM IST
Updated: Mon, Jun 08 2009. 04 01 PM IST
Kuala Lumpur: Global airlines called on Monday for concerted action to prevent another runaway surge in oil prices as the International Air Transport Association nearly doubled its forecast of industry losses to $9 billion in 2009.
The head of the Geneva-based airline lobby lambasted “greedy speculation” in oil markets and accused governments of squandering money raised from aviation while carriers suffer from still slumping demand.
“This is the most difficult situation the industry has faced,” IATA director general Giovanni Bisignani told the aviation body’s annual meeting in the Malaysian capital.
“I am a realist. I don’t see facts to support optimism.”
However, John Leahy, commercial director at European aircraft manufacturer Airbus, said that while 2009 would be tough, plans by United Airlines to order as many as 150 new planes from Airbus or rival Boeing Co showed the market was starting to turn.
“Cancellations are not as much of an issue as deferrals. I don’t think we’ll have that many more cancellations,” he told Reuters in an interview.
Oil Pressure
IATA, the voice of more than 200 airlines, has repeatedly warned of a grim year for carriers as global recession shrinks passenger demand and weak financing drives down cargo trade.
Conditions have worsened after the outbreak of H1N1 swine flu caused a worldwide health scare and as oil prices -- until recently a sole bright spot on the horizon after peaking near $150 a barrel last year - climb again.
“The risk we have seen in recent weeks is that even the slightest glimmer of economic hope sends oil prices higher. Greedy speculation must not hold the global economy hostage,” Bisignani said.
Prices for jet fuel in Singapore have jumped almost 60 percent since bottoming out at $46 a barrel in March.
Still, IATA estimates the industry fuel bill will decline by $59 billion to $106 billion in 2009, or 25% of costs versus 31% in 2008, a year of extraordinary volatility.
As the downturn bites, more consolidation in the airline industry was “definitely a possibility”, Leahy said.
Shares of China Eastern Airlines and Shanghai Airlines were suspended on Monday after media said the two loss-making carriers may merge.
Singapore Airlines, which tried unsuccessfully to buy a stake in China Eastern last year, was still keen on acquisitions in China and India, its CEO said.
Airlines said there were few signs of respite from the crisis which has driven passenger traffic down 3% and freight down 22% as of April, according to IATA.
In Europe, airline stocks underperformed a weaker market and fell about 2% after IATA revised up its 2009 industry loss forecast from $4.7 billion just three months ago.
“These new estimates confirm the difficulties the airline sector is currently going through due to the slump in passenger traffic since end-2008,” said Harald Liberge-Dondoux of CM-CIC Securities in a note.
“The rise in oil prices might weigh even more heavily on airline companies that thought they could offset the losses stemming from the drop in traffic with savings on fuel costs.”
Order Delays
Bisignani said the aviation industry’s 2009 revenues would fall by $80 billion to $448 billion because of the crisis.
Following a three-year boom in orders ending last summer, IATA airlines collectively have unfilled orders for some $500 billion worth of aircraft at today’s prices, Reuters calculates.
While new capacity offers precious savings in fuel costs due to modern plane design, a shortage of financing for final payments has forced many airlines to postpone their deliveries.
The chairman of state-owned Air India said his company was considering delaying planes on order from Boeing.
“I don’t have cash, what do you expect me to do?” Arvind Jadhav told reporters. Air India has over $8 billion worth of planes on order from Boeing, including 27 Dreamliners.
Cathay Pacific, Hong Kong’s largest carrier, said it was also looking to further delay deliveries of new planes as it had seen no signs of recovery in its business.
“Once again, aircraft ordered in good times are being delivered in recession. Finding customers to fill them will be a challenge,” Bisignani said.
A rare exception is Qatar Airways, which has about $27 billion worth of planes on order and wants deliveries speeded up, according to its chief executive.
The airline says it will order more at next week’s Paris air show.
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First Published: Mon, Jun 08 2009. 04 01 PM IST
More Topics: Airlines | IATA | Global | Loss | Travel |