Profits to dive over oil price crisis

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STORM WARNING: Bisignani shares his concerns for future.

Industry body IATA has revised its 2008 annual forecast for the aviation industry significantly downwards to a loss of US$2.3 billion.

This extreme warning contrasts with the previously forecast industry profit of $4.5 billion announced in March, which was based on the assumption of an average barrel of crude costing $86 per barrel. The consensus price now being used by IATA has a barrel of Brent valued at $106.5.

"For every dollar that the price of fuel increases, our costs go up by $1.6 billion," claimed Giovanni Bisignani, IATA's director general and CEO, at the body's 64th AGM in Istanbul, Turkey. "We also need to take a reality check.

Despite the consensus of experts on the oil price, today's oil prices make the $2.3 billion loss look optimistic. If we see $135 oil for the rest of the year, losses could be $6.1 billion."

The aviation industry's fuel bill based on the $106.5 barrel of oil would come to $176 billion, or 34% of operating costs. By comparison, the percentage taken up by fuel with regard to operating costs was 29% in 2007, and just 13% in 2002.

"Oil is changing everything. There are no easy answers. In the last six years, airlines improved fuel efficiency by 19% and reduced non-fuel unit costs by 18%. There is no fat left," added Bisignani.

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