It is estimated that airlines will lose $1.7 billion, with a fuel bill of US$115 billion calculated for an average oil price of US$68 per barrel (Brent).This is part of the International Air Transport Association’s revised forecast for 2006 industry losses.
This is a significant improvement on the previous loss forecast of US$3.0 billion made in June that was based on an oil price of US$66 per barrel for a total fuel bill of US$112 billion. However, stronger than anticipated economic growth has boosted airline revenues, and restructuring efforts have elevated load factors to record levels.
Airlines ended 2005 with a US$3.2 billion loss including a fuel bill of US$91 billion. “We are still in the red, but what other industry could add US$24 billion to its second largest cost in a year and still improve the bottom line? Efficiency, hard work and a strong revenue environment have all contributed to this amazing result,” said Giovanni Bisignani, IATA’s Director General and CEO.
Regional differences are narrowing:
á The North American industry has recovered significantly and is expected to return to operating profitability this year, though restructuring costs will limit the reduction in net losses to US$4.5 billion. “Restructuring has cut non-fuel costs, raised load factors and boosted yields,” said Bisignani.
á European airlines are forecast to see their profits rise to US$1.8 billion. “Strong growth in premium traffic is the positive spin-off from a stronger European economy. And double-digit growth in Asia-Europe markets contributed significantly,” said Bisignani.
á Asian Airlines lost a little ground with a projected US$1.7 billion profit. “Lower hedging levels than European counterparts meant more exposure to the rising price of fuel. At the same time, the rapid development of low-cost airlines is negatively impacting yields on some key regional routes,” said Bisignani.
For the first seven months of 2006, passenger traffic grew 6.4% and cargo 5.3%. “Careful capacity management saw the industry fill an average of 76% of their seats for the first seven months of the year—and an amazing 80.8% in July. The result is a strong revenue environment that has contributed significantly to the improved results,” said Bisignani.
“Although traffic growth remains strong, the long-term impact of terrorism and instability in the Middle East is still to be calculated. The improvement is based as much on efficiency as strong revenues, so a US-led economic slowdown is the major threat to profitability. Overall, the industry has never been so lean, mean and well poised to return to profitability,” said Bisignani.