High fuel bills will damage profits of global airline industries

High oil prices are "destroying" the profitability of the global airline industry, which faces losses this year of $6 billion (€4.8 billion), its fifth successive year of net losses, Giovanni Bisignani, director-general of the International Air Transport Association, warned yesterday.

Mr Bisignani told Iata's annual meeting in Tokyo that the industry's fuel bill was forecast to jump from $61 billion last year to $83 billion in 2005, based on an average price of $47 a barrel for the benchmark Brent crude.

The fuel bill now accounts for around 22 per cent of the industry's total costs and has jumped $39 billion in two years, overwhelming airlines' cost-cutting efforts.

Global airline cumulative net losses are forecast to reach $42 billion for 2001-05, with the bulk of the losses coming in the US.

That compared with net profits of $2.6 billion earned by Asia-Pacific airlines and profits of $1.4 billion made by European carriers.

Non-US airlines have had some protection from rising oil prices because of the weakness of the US dollar, but US carriers have been unable to hedge their fuel needs significantly because of their weak financial position.

Mr Bisignani said efficiency gains could not make up for structural problems in the US, where labour costs remained high and low-cost competition had continued to drive down yields, or average fares, at leading hub airports.

In Europe, consolidation had helped capacity management, while Asian carriers had the competitive advantage of low labour costs and strong growth fuelled by China.

India may also be "the next great market for the industry", Mr Bisignani said.

But the absence of a single European sky, with 35 air traffic control organisations, was costing the airline industry $4.4 billion a year in wasted fuel, said Mr Bisignani, while poor airspace design in China's Pearl River delta region was wasting $300 million a year.

He urged governments to deregulate the industry in order to open access to global capital markets, cut the tax burden, regulate monopoly suppliers and appoint an independent regulator to ensure that airport service companies boosted efficiency.

Several airline chief executives echoed Mr Bisignani's sentiments.

"Governments must stop distorting competition," said Tony Fernandes, chief executive of Air Asia, the Malaysia-based low-cost carrier.

Leo van Wijk, vice-chairman of Air France-KLM, Europe's leading airline by turnover, was more blunt: "It's pretty damned difficult to have open skies if you don't have a level playing field."