Closing the gap

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GIOVANNI BISIGNANI: IATAs CEO discusses fuel costs, safety and environmental improvements.

Giovanni Bisignani, director general and CEO of the International Air Transport Association explains his views on the aviation sector.

What is the global impact of the high oil price?

This is the first time we have had a crisis in revenues and costs. We were using the forecast that is provided by the so-called consensus, a group of experts that try to identify the price of fuel. At the time we saw a consensus price of US$107 a barrel we were losing $2.3 billion.

We had a reality check and thought what is the price of the future, so if you had to hedge what is the price of oil and it was $135, this means our total losses will be $6.1 billion. If this situation remains it will add to our total bill $99 billion.

That's why this is the perfect storm. In September 11 we had a financial situation of the airlines that wasn't so bad. But after the incident we had to experience many years of losses ($42 billion), with last year the first to make a small profit ($5.6 billion).

But $5.6 billion is a 1% margin, which is not a very healthy situation. If you add it now we also have $190 billion debts, so we are in a weak financial situation.

On top of this we see the traffic is slowing down practically all over and there is a problem of over capacity. The airlines are handling this because as you will have read in the papers, the major US airlines have cut capacity by 10-13%.

This will help because if you have more capacity you can raise better fares to compensate the gap in the oil. But we are in a weak situation that will be emphasised after the summer because all the current traffic is trips that were booked three to four months ago.

In the summer there will be no cancellations but after September we will see a big drop in revenues and that will increase the imbalanced situation we have between costs and revenues.

How will the rising oil price affect cash rich, state-owned Mid-East carriers?

This is a situation that has been negated several times with different associations. We are looking for an industry that is run in a consistent and harmonised way. We are against state subsidies.

Europe made a good decision many years ago that no subsidies would be allowed. The result is we have a European system that was profitable last year, although Alitalia is an exception. This message that state-owned isn't allowed has been good for the industry. In other cases, we still have these situations but we are against it.

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