US$6.1 billion in losses, maybe more, warns IATA

IATA has, for the third time now, 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 US$106.5 per barrel crude (Brent). This is a swing of US$6.8 billion from the previously forecasted industry profit of US$4.5  billion that was announced in March and based on an average oil price of US$86 per barrel (Brent).

“For every dollar that the price of fuel increases, our costs go up by US$1.6 billion,” said Giovanni Bisignani, IATA Director General and CEO at the Association’s 64th Annual General Meeting and World Air Transport Summit in Istanbul, Turkey.

The industry’s total fuel bill in 2008 is expected to be US$176 billion (based on oil at US$106.5 per barrel) accounting for 34% of operating costs. This is US$40 billion more than the 2006 bill which was US$136 billion (29% of operating costs). In 2002, the bill was US$40 billion, equal to 13% 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 US$2.3 billion loss look optimistic. For every dollar that the oil price increases, we add US$1.6 billion to costs. If we see US$135 oil for the rest of the year, losses could be US$6.1 billion,” said Bisignani.

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

“Oil is changing everything. There are no easy answers. In the last six years, airlines improved fuel efficiency by 19% and reduced non-fuel unit costs by 18%. There is no fat left. To survive this crisis, even more massive changes will be needed quickly. Air transport is a catalyst for US$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,” Bisignani concluded.

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