Airlines to suffer big losses in 2008

Airlines may report a collective loss of $2.3 billion this year as spiraling fuel costs and a slowing economy wipe out earnings, the industry's main trade group said.

The new outlook is based on oil at $107 a barrel, the International Air Transport Association (IATA) said yesterday at its annual meeting in Istanbul. With crude at $135, losses may widen to $6.1 billion, according to the group, whose 230 members account for more than 93 percent of international airline traffic.

IATA, which forecast a $4.5 billion profit as recently as April 1, slashed estimates for the fourth time in nine months. A 42 percent jump in oil prices in six months has combined with a slowdown in demand following the tightening of global credit to create a "perfect storm" for the industry, which had a profit of $5.6 billion in 2007, the first since the 2001 terror attacks, IATA Chief Executive Officer Giovanni Bisignani said.

"Just as we start to recover we face another crisis of potentially even greater dimension," Bisignani told the meeting. "Skyrocketing oil prices are changing everything. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined."

More than a dozen carriers have collapsed in the past six months, with UK-based business-class specialist Silverjet Plc the latest casualty, grounding planes last week after running out of cash. Columbus, Ohio-based Skybus Airlines Inc. and Frontier Airlines Holdings Inc. of Denver also failed in recent weeks.

Carriers everywhere are seeking to cut costs and some have begun charging for items such as snacks and checked luggage. Soaring fuel costs are forcing other airlines to consolidate to survive. Delta Air Lines Inc and Northwest Airlines Corp on April 14 agreed to merge in a tie-up that will create the world's largest carrier.

The eight-member Bloomberg Europe Airlines Index was trading down 1.8 percent yesterday, with shares of EasyJet Plc, Europe's second-biggest discount airline, falling as much as 4.2 percent and British Airways Plc, the continent's third- largest carrier, down as much as 2.9 percent.

Forecast slashed

Virgin Blue Holdings Ltd, Australia's second-biggest airline, fell to a record low in Sydney trading after UBS AG forecast the carrier will have a loss in fiscal 2009 as jet-fuel costs surge.

UBS estimates a loss of A$40 million ($38.2 million) for Virgin Blue in the year to June 30, 2009, compared with a previous target of a A$60 million profit, analysts Simon Mitchell and Ramoun Lazar said today in a report. Virgin Blue, based in Brisbane, slumped as much as 7.3 percent.

Virgin Blue, 62 percent-owned by Toll Holdings Ltd, slashed its fiscal 2008 earnings forecast in April as jet-fuel prices have more than doubled in the past year.

Agencies

(China Daily 06/03/2008 page16)