IATA sees air industry $2.3 billion in red for 2008
The leading international air transportation trade group Tuesday predicted the industry will experience a $2.3 billion loss this year due primarily to the surging price of fuel worldwide.
The International Air Transport Association prediction is a staggering reversal of the group's previous financial forecast for 2008. IATA predicted in March that the industry would see a $4.5 billion profit, however the estimate was based on an average oil price of $86 per barrel. The new estimate, based on a consensus oil price of $106.5 per barrel of Brent crude, is $6.8 billion lower than the March forecast.
'For every dollar that the price of fuel increases, our costs go up by $1.6 billion,' IATA director general and chief executive officer Giovanni Bisignani told audience members Monday at the group's 64th annual meeting being held in Istanbul, Turkey.
IATA expects the industry to spend $176 billion, based on the $106.5 per barrel rate, for fuel in 2008, accounting for 34 percent of total operating costs. The industry's projected fuel bill for this year is $40 billion more than the $136 billion spent on fuel in 2006, which at the time represented 29 percent of total operating costs for the industry. In 2002, when the industry spent $40 billion for fuel, the price of fuel represented 13 percent of total operating costs for the industry.
'Oil is changing everything,' Bisignani said. 'There are no easy answers. In the last six years, airlines improved fuel efficiency by 19 percent and reduced non-fuel unit costs by 18 percent. There is no fat left.'
Bisignani said that in order for firms to 'survive this crisis,' the industry must implement even more massive changes. He pointed out that the fuel situation has the potential to reshape the entire international air transport industry, which according to IATA is a catalyst for $3.5 trillion in business revenue and 32 million jobs. Bisignani also said that governments, industry partners and labor 'must deliver change,' if the industry is to survive.
And, while the prediction of a $2.3 billion loss for 2008 may be bad enough for an industry already experiencing several notable bankruptcies this year, Bisignani warned that the situation may be even more dire than his group is predicting due to the ongoing volatility of fuel prices.
'Despite the consensus of experts on the oil price (for the IATA forecast), today's oil prices make the $2.3 billion loss look optimistic,' Bisignani said. '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.'
Bisignani predicted that if oil prices remained in the $135 range for the rest of the year, the industry could see losses above $6 billion.