IATA: Airlines will see profit only if oil drops
HONG KONG (Reuters) Air passenger numbers will grow again in 2005 but the global airline industry will only post its first profit in five years if oil prices drop by some $15 a barrel, an industry expert said on Monday.
Battered by the World Trade Center attacks, wars in Afghanistan and Iraq, a SARS epidemic and now soaring oil prices, airlines have made a cumulative net loss of $34 billion in the last three years and are headed for a loss of $5 billion in 2004.
But an expected 5-6% rise in travelers next year, and possibly lower oil prices, are giving the industry a glimmer of hope, according to the International Air Transport Association.
The trade body's chief economist, Brian Pearce, said a slowing world economy with China trying to cool investment and the impact of U.S. tax cuts fading could pull oil prices down.
If oil fell to around an average $35 a barrel next year from just under $50 now, airlines could make a net profit of $1.16 billion, their first profit since the $3.7 billion made in 2000.
"Next year, if oil prices come down to the mid-30s, we are looking at small profits," Pearce told an airline finance conference in Hong Kong.
"Still, it's dependent on oil. We'll see substantial losses again if oil prices stay at $50 per barrel."
Fuel costs account for around 18% of operating expenses at airlines, up from only 10% in 1998.
Pearce predicted air travel would continue to grow in popularity, with Asia giving airlines grounds for optimism. China's urban middle class are likely to travel much more as incomes grow.
"The underlying story is there's potential catch-up with education levels and the integration of the Chinese economy into the world economy," Pearce said.
Global air travel grew 17.7% in the first nine months of this year from a low base in 2003, with tourists shaking off last year's nerves over SARS and the Iraq war.
Copyright 2004 Reuters Limited.