June 8, 2009 / 3:48 AM / 9 years ago

Global airlines fear oil rally as losses mount

KUALA LUMPUR (Reuters) - Global airlines called for concerted action to prevent another runaway surge in oil prices as the International Air Transport Association nearly doubled its forecast for industry losses to $9 billion in 2009.

(L-R) Senior Vice President of the International Air Transport Association (IATA) Thomas Windmueller, Chief Executive of Malaysia Airlines System Idris Jala and Director General & CEO of IATA Giovanni Bisignani, listen during the 65th IATA Annual General Meeting in Kuala Lumpur June 8, 2009. REUTERS/Zainal Abd Halim

The head of the Geneva-based airline lobby on Monday lambasted “greedy speculation” in oil markets and accused governments of squandering money raised from aviation while carriers suffer from still slumping demand.

“Our industry is in survival mode,” IATA Director General Giovanni Bisignani told the aviation body’s annual meeting in the Malaysian capital.

“I am a realist. I don’t see facts to support optimism,” he said. “This is the most difficult situation the industry has faced.”

However, John Leahy, commercial director at European aircraft manufacturer Airbus, said that while 2009 would be tough, plans by United Airlines to order as many as 150 new planes from Airbus or rival Boeing Co showed the market was starting to turn around.

“Cancellations are not as much of an issue as deferrals. I don’t think we’ll have that many more cancellations,” Leahy told Reuters in an interview.

OIL PRESSURE

IATA, the voice of more than 200 airlines, has repeatedly warned of a grim year for carriers as global recession shrinks passenger demand and weak financing drives down cargo trade.

IATA’s latest figures helped send airline stocks lower in morning trading on the New York Stock Exchange. The Amex airlines index fell 3 percent.

In Europe, airline stocks underperformed a weaker market and fell up to 4 percent after IATA revised its 2009 industry loss forecast from its March estimate of $4.7 billion.

“Investors in the airline industry are so sensitive to any new data point that may change the outlook or prospects for recovery,” Majestic Research analyst Matt Jacob said of the IATA data.

“Very often those incremental data points can have a big impact in airline valuations even if they do not necessarily represent a big change in forward looking expectations for most investors.”

American Airlines Chairman and Chief Executive Gerard Arpey sits during the Oneworld Alliance media briefing on the sidelines of the 65th International Air Transport Association (IATA) Annual General Meeting in Kuala Lumpur June 8, 2009. REUTERS/Bazuki Muhammad

The new IATA estimates confirm the difficulties the airline sector is going through due to the slump in passenger traffic since end-2008, Harald Liberge-Dondoux of CM-CIC Securities said in a note.

Conditions have worsened after the outbreak of H1N1 flu caused a worldwide health scare and as oil prices — until recently a sole bright spot on the horizon after peaking near $150 a barrel last year — climb again.

Prices for jet fuel in Singapore have jumped almost 60 percent since bottoming out at $46 a barrel in March.

Still, IATA estimates the industry fuel bill will decline by $59 billion to $106 billion in 2009, or 25 percent of costs versus 31 percent in 2008, a year of extraordinary volatility.

As the downturn bites, more consolidation in the airline industry is “definitely a possibility,” Leahy said.

Shares of China Eastern Airlines and Shanghai Airlines were suspended on Monday after media said the money-losing carriers may merge.

Singapore Airlines, which tried unsuccessfully to buy a stake in China Eastern last year, is still keen on acquisitions in China and India, its CEO said.

Japan Airlines CEO Haruka Nishimatsu listens to question from a journalist at the 65th International Air Transport Association (IATA) Annual General Meeting in Kuala Lumpur June 8, 2009. Asia's largest carrier, Japan Airlines, plans to reduce capacity on its international routes by 10 percent for fiscal year 2010, its head said on Monday. REUTERS/Zainal Abd Halim

ORDER DELAYS

Bisignani said the aviation industry’s 2009 revenues would fall by $80 billion to $448 billion because of the crisis.

IATA airlines are nursing a hangover from a three-year order boom up until 2008 that left them with commitments to buy planes worth a total $500 billion at today’s list prices in coming years using cash that many do not have, Reuters calculates.

While new capacity offers precious savings in fuel costs due to modern plane design, a shortage of financing for final payments has forced many airlines to postpone deliveries.

The chairman of state-owned Air India said his company was considering delaying planes on order from Boeing.

“I don’t have cash, what do you expect me to do?” Arvind Jadhav told reporters. Air India has over $8 billion worth of planes on order from Boeing, including 27 Dreamliners.

Cathay Pacific, Hong Kong’s largest carrier, said it was also looking to further delay deliveries of new planes as it had seen no signs of recovery in its business.

“Once again, aircraft ordered in good times are being delivered in recession. Finding customers to fill them will be a challenge,” Bisignani said.

A rare exception is Qatar Airways, which has $27 billion worth of planes on order and wants deliveries speeded up, according to its chief executive. The airline says it will order more at next week’s Paris air show.

Additional reporting by Christina Pantin, Neil Chatterjee, Raju Gopalakrishnan, Jean Yoon, Soo Ai Peng, Deepa Seetharaman; Writing by Lincoln Feast, Tim Hepher; Editing by Dhara Ranasinghe and John Wallace

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