Soaring jet fuel prices are hammering the aviation industry and could result in airlines getting stung by losses this year totalling $4-billion (U.S.), says the head of the International Air Transport Association.
The red ink comes as a huge disappointment because passengers have been flocking back to the skies in 2004, said Giovanni Bisignani, IATA's director-general.
The group had originally forecast that industry profit could total $3-billion this year. But the rosy projection fell by the wayside as crude oil prices surged this year.
Mr. Bisignani said the airline sector's losses would have been even worse in 2004, were it not for the increase in passengers, cost-cutting programs and some leaner airlines still making a profit.
Before jet fuel prices jumped this year, the aviation industry had been facing four main factors crimping demand for seats: An economic slowdown after the terrorist attacks on Sept. 11, 2001, then last year's Iraq war and SARS outbreak, and lingering terrorist threats.
“The good news is that traffic is picking up in a very strong way. The bad news is fuel has become this fifth horseman of the apocalypse and is upsetting the positive forecast,” Mr. Bisignani said during a break at an aviation conference that wrapped up Sunday.
More than 340 delegates from 60 countries attended the three-day event sponsored by the International Civil Aviation Organization and McGill University's Institute of Air and Space Law.
After posting a modest profit in 2000 as a group, airlines worldwide went on to lose $30.9-billion on domestic and international operations over the next three years during a painful downturn, according to industry tallies. After a record $13-billion loss in the airline sector in 2001, the aggregate loss fell to $11.3-billion in 2002 and $6.6-billion last year.
“The industry is going through a very difficult moment,” with airlines making hard decisions to slash costs, and in some cases, seeking bankruptcy protection, said Mr. Bisignani, who is based in Geneva.
Jet fuel prices set record closing and intraday highs last week.
IATA's $4-billion loss estimate, based on Brent North Sea oil prices averaging $37 a barrel during 2004, is sharply lower than other forecasts of a $10-billion loss this year, said Anthony Concil, IATA's director of communications.
For every $1-a-barrel rise above that $37 yearly average, another $1-billion in annual losses would be added. Mr. Concil said IATA recently revised its calculations to arrive at its latest financial forecast, which takes into account both domestic and international operations.
As a whole, the industry is headed for a better year in 2004 than last year, although there are notable exceptions such as US Airways Group Inc. filing recently for bankruptcy protection for the second time since 2002, conference delegates heard.
IATA's membership comprises 277 airlines accounting for more than 95 per cent of global scheduled air traffic.
Mr. Bisignani will hold a news conference today in Montreal to update global traffic statistics.
In the first seven months of this year, international passenger traffic jumped 20.1 per cent while global cargo traffic rose 14.1 per cent over the same seven-month period in 2003. IATA's traffic statistics do not include domestic figures.
For 2005, IATA is holding out hope for a breakeven year, assuming there aren't more woes to contend with and if jet fuel prices fall.
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