By Massoud A. Derhally
Tim Clark says US$80 a barrel oil would lead to "different complexion on international aviation"
The airline industry, which has seen its profits dwindle over the past two years in the wake of a slowing global economy, would be in a much stronger position if the price of oil was US$80 a barrel, Tim Clark president of Emirates Airline, the world's largest carrier by international passenger traffic, said.
"The primary driver in all of this is the cost of fuel, if that was down where it should be which is about US$80 a barrel and the fuel into plane was about 250 cents instead of 340 cents as it is for Emirates today, you would be looking at a different complexion on international aviation," Clark said in an interview with Arabian Business.
"It would be far more profitable, it would be far more expansive, it would be far more upbeat. At the moment it is contractionary, it is depressed. The mindset of the management of these companies are fairly negative and concerned more about trying to keep their heads above water than growth."
The airline industry which has been in a downward spiral since its peak in 2010 is forecast to earn US$4.1bn in profits this year, according to the International Air Transport Association (IATA). That is slightly up from the organisation's original estimate of US$3bn in net profit, yet still 78.6 percent lower than the high of US$19.2bn earned by air carriers two years ago. The increase in this year's forecast is a direct reflection of an improvement in performance by airlines even as the global economy lags in its recovery, according to IATA.
The industry's performance is expected to improve with airline profits surging 83 percent from this year to US$7.5bn in 2013, according to IATA's forecasts, so long as the debt crisis in Europe does not worsen, the US does not hit its fiscal cliff, China's economy does not continue to slow and oil prices are somewhat lower than 2012. That improvement only represents a profit margin of 1.1 percent for an industry that is expected to see revenues of US$660bn in 2013.
"We (Emirates) are subjected to the same adverse trading conditions as everybody else, be that depressed economies in Europe, high fuel prices, difficulties in government punitive taxation, environmental taxes, we face that just the same as everybody else does," Clark said.
He added that Emirates has been able to outperform other carriers because of a business model that relies on a varied 126-destination network spanning the globe to feed its business across its hub "from all sorts of places that people in the past thought we were nuts to go to,'' Clark added. "But now of course they're paying dividends. We are able to keep our head above water, keep on growing our business, relying on a revenue stream that comes from a fairly geographic distant and somewhat regarded as remote to the airline world. We do not put all our eggs in the same basket with regards to the north Atlantic or south Atlantic. We try and balance the production so that we can take any knocks in the system that come from anywhere."
Whereas other airlines reported a plunge in their third quarter profits, Emirates more than doubled its net profit which reached US$464m in the first half year period ending September 30. The airline also recorded an average passenger seat factor of 80 percent in the same period.
Richard Aboulafia, vice president of Fairfax, Virginia-based Teal Group, an aviation consulting firm said Emirates, and to a lesser extent Qatar Airways and Etihad Airways, "have done well attacking traffic carried by European and Asian legacy carriers."
"Given superb geography, strong funding from home governments, and smart brand creation efforts, it’s difficult to see what will disrupt this process,'' he added.