Surging oil prices due to political turmoil in the Middle East spell “very, very big challenges” for airlines, International Air Transport Association chief Giovanni Bisignani said on Wednesday.
The political unrest that has swept the key oil-producing Middle East and North African region, including Libya, Bahrain, Yemen and Iran, has stoked fears of disruption to global crude supplies and led to price spikes.
The troubles have kept oil at two-year highs, with Brent North Sea crude for delivery in April up US$0.22 at US$106 a barrel. New York’s main contract, light sweet crude for April, rose US$0.04 to US$95.46.
However, further crude oil price rises could be capped after Saudi Oil Minister Ali al-Naimi said OPEC would step in to meet any supply shortage caused by the turmoil.
“Oil is a big problem because it could change completely the picture” for the sector, said the chief of IATA, which represents 230 airlines comprising 93 percent of scheduled international air traffic.
Bisignani said high energy prices could turn what had been “forecast to be a profitable year into a very complicated year.”
Airlines are facing “very, very big challenges” due to the high oil prices, he told a press conference in Tokyo.
IATA recently predicted passenger traffic would grow for the second consecutive year after its crisis-driven drop in 2008, but it said net profits for airlines as a whole would fall 40 percent to US$9.1 billion this year. The forecast was based on an oil price of US$84 per barrel for Brent crude.
On Tuesday, the IMF’s No. 2 official said the world economy could withstand the recent surge in oil prices so long as the increase proves short-lived, echoing Deutsche Bank AG and Bank of America Merrill Lynch (BofA Merrill Lynch).
“It’s unlikely it would make a substantial change in the global economic outlook,” John Lipsky, the IMF’s first deputy managing director, told Bloomberg Television’s Inside Track.
The Washington-based lender assumed oil would average about US$95 a barrel this year when it forecast global economic growth of 4.4 percent for this year, he said.
US consumer confidence rose to its highest level in three years this month, according to a report on Tuesday. Data showed on Monday that German business confidence increased to a record this month.
“Economies are vulnerable to the oil price, but so far it’s looking like business and consumer confidence are relatively strong,” said Michael Lewis, London-based head of commodities research at Deutsche Bank, which predicts world growth will surpass 4 percent for the second successive year.
“The good thing is we’re seeing generally positive economic conditions and the higher oil prices we’re seeing don’t seem to be having an impact on the economic climate,” Willie Walsh, chief executive officer of International Consolidated Airlines Group SA, said in an interview on Tuesday at an aircraft finance conference in Geneva sponsored by ICBI. “Most airlines are hedged.”
Hedging contracts for this year mean Deutsche Lufthansa AG’s is saving money when the price of crude oil rises to more than US$88, said Stefanie Stotz, a Frankfurt-based spokeswoman for the company.
The world recovery would be jeopardized if oil climbed to average US$115 a barrel this year and US$130 next year, according to analysts at BofA Merrill Lynch. That would return the world’s energy bill as a share of the economy to the 9 percent level of the 1980s, when costlier crude tipped consuming nations into a recession, they said in a Jan. 25 report.
Not all economies are safe, the BofA Merrill Lynch strategists say. Turkey, so-called peripheral European economies, India, South Korea and Indonesia could start to suffer if oil averaged US$110 to US$120 a barrel this year, while a range higher than that would start to pinch Germany, Japan and China.
Mohammad Ali Khatibi, Iran’s governor to OPEC, said the organization is supplying more oil than the world market needs, and it has no plans to call an emergency meeting.
“There are some temporary supply issues, but stocks are high and there is no permanent shortage in supply,” he said.
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