Airlines Losing Billions On Fuel Prices

Soaring oil prices will mean losses of $3 billion for global airlines this year, industry lobby group IATA said on Monday, raising its forecast from $2.2 billion as fuel woes outpace cost-cutting efforts.

The figure for now remains below the loss of $3.2 billion for 2005, but IATA Chief Executive Giovanni Bisignani told the group's annual meeting in Paris that uncertainty remained.

"Oil is the wild card. Prices are racing ahead of efficiency gains and robbing our profitability," he said in a speech on the state of the industry.

"The industry fuel bill will top $112 billion this year -- $21 billion more than 2005," said the International Air Transport Association, which represents 261 airlines handling 94 percent of the world's scheduled air traffic.

Revenues up 10 percent in each of the last three years have helped buffer airlines, as have cost-cutting efforts, which Bisignani said have reduced non-fuel costs by 13 percent overall since 2001.

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"(Such) efforts have moved the break-even fuel price from $14 per barrel to $50," he said, illustrating the dilemma for carriers with crude oil prices now above $70 a barrel and near to record levels.

Fuel is expected to make up 26 percent of airlines' average costs in 2006 compared with 22 percent the previous year.

In order to make money, airlines need on average to fill 63.3 percent of their available capacity by weight in 2006, but are only expected to manage 62.4 percent, IATA said.

Its outspoken CEO told member airlines that governments need to remove barriers which are holding back the sector's efforts to be more efficient.

Bisignani noted IATA's drive to do away with paper tickets by the end of 2007 but said governments remained an obstacle to taking similar cost-saving steps in the air freight sector.

"Not a single government has all the legislation in place to support e-freight. In today's Internet world, this is an embarrassment."

Rising charges at airports, some of them government-owned, were also a problem, he said.

IATA complains governments still treat aviation as a luxury whereas it is now part of everyday life. Airlines are incensed by French plans to tax flights to pay for aid to poor nations.

The European Union's most senior transport official, European Commission Vice President Jacques Barrot, defended the trade bloc's record on liberalisation.

"The cumulative losses of international airlines in IATA in the past five years reached $42 billion, but European companies made $1.3 billion in profit last year," he told IATA members.

Rapid expansion of routes, led largely by budget carriers, has helped European carriers perform more profitably than their peers in the United States, where the impact of Southwest Airlines and other low-cost carriers has hobbled profits at traditional airlines. Some majors are in bankruptcy protection. (Additional reporting by Benoit Van Overstraeten)

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