From: Reuters
Published June 2, 2008 01:02 PM

Global airline losses possible in 2008: industry group

By Emma Ross-Thomas

ISTANBUL (Reuters) - A significant decline in global airline profitability, or even losses, look inevitable this year as the industry struggles with sky-high fuel prices, the International Air Transport Association (IATA) said on Monday.

"The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined," IATA Director General Giovanni Bisignani said in a speech at an annual meeting held this year in Istanbul.

IATA said a combination of high fuel prices, a U.S. economic downturn and accelerated deliveries of aircraft ordered at the peak of the economic cycle but delivered during a slowdown meant the outlook for 2008 was "clouded by the perfect storm."

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"Adding to the downward pressures on revenue growth from the U.S. recession will be the acceleration in aircraft deliveries in 2008 and 2009," IATA said in its annual report.

Record oil prices, which hit an all-time high of $135.09 a barrel on May 22, are threatening the outlook for industry. Oil prices <CLc1> have roughly doubled in the past year.

U.S. airlines are already suffering the most because of the downturn in the world's biggest economy. U.S. carriers have raised fares, added new fees and surcharges, cut jobs and reduced services to cope with oil prices and the slowdown.

European industry officials said ticket prices would have to rise and capacity would be cut, while low-cost carriers would be hardest hit as a larger slice of their costs comes from fuel.

British Airways <BAY.L> Chief Executive Willie Walsh said the company expects to trim its capacity later this year.

Also speaking on the sidelines of the conference, KLM <AIRF.PA> Chief Executive Peter Hartman told Reuters demand would be hit by the oil price and economic slowdown, but so will supply be reduced as airlines go under.

"You will also see a lower supply because more and more airlines get in the red and in trouble, and of course everybody who has an increase in costs, as far as he cannot manage it under productivity improvements, should increase the prices for the consumer," he said.

But TAP Air Portugal <TAPA.UL> CEO Fernando Pinto said that while airlines had historically passed on about a third of additional fuel costs to customers, it was not easy to do so in a market already hit by economic slowdown.

"This 33 percent might not be enough to cover such a high (oil price) increase ... But this 33 percent is a lot for a market that is not very strong to absorb," he told Reuters.

LOSSES SEEN IN 2008

Crisis in the industry has also overshadowed a long-running attempt to sell ailing Italian carrier Alitalia <AZPIa.MI>, and on Monday the head of Air France-KLM <AIRF.PA>, once a potential bidder, said he could not guarantee that any such deal would create value for shareholders. Chief Executive Jean-Cyril Spinetta said his carrier had no contact with Alitalia.

Twenty-four airlines have stopped operating or gone bankrupt in the last six months and the industry will see losses of $2.3 billion in 2008 if the price of a barrel of Brent oil <LCOc1> averages $107 this year, IATA chief Bisignani forecast.

He said if oil remained at $135 a barrel for the rest of the year, airline industry losses would be $6.1 billion, compared with a profit last year of $5.6 billion.

Emirates President Tim Clark told Reuters he expected prices to peak at $140 this year but then come down. He also forecast continued strong growth for the Dubai-based airline.

Bisignani said traffic growth in the industry would at best be 3.9 percent this year, down from 5.9 percent in 2007. IATA also called for governments to heed its calls for fairer taxation and energy costs as well as better regulation.

"Unless the world plunges into recession people will still want to fly," said Airbus Chief Executive Tom Enders. "In the long term we are in a growth business... we need to see how we can handle the challenge."

IATA represents 240 airlines operating 94 percent of all international passenger and cargo flights.

(Additional reporting by Paul de Bendern; Writing by Emma Ross-Thomas; Editing by David Cowell and Erica Billingham)

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