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Fri, Mar 24, 2006 - Page 10 News List

Airline industry's losses forecast to drop this year

GLOBAL VIEW The head of the International Air Transport Association said US airlines will lose US$5.4 billion this year, largely due to fuel costs


Higher fares and lower labor costs will help the global airline industry combat soaring jet-fuel prices and trim its losses this year, an industry group said on Wednesday.

The head of the Geneva-based International Air Transport Association, Giovanni Bisignani, projected a US$2.2 billion loss for the global airline industry this year -- down from US$6 billion last year -- as profitability among European and Asian carriers is expected to offset narrower losses for US airlines.

Bisignani spoke at an industry luncheon in New York. A copy of his speech was posted on the association's Web site.

Bisignani forecast that US airlines will lose US$5.4 billion this year, assuming world oil prices average US$57 a barrel. Last year, US carriers lost some US$10.8 billion (excluding United's US$16.7 billion fourth-quarter restructuring costs) on average oil prices of more than US$56 a barrel.

Bisignani said he expects European carriers to show slimmer profits of US$1.4 billion this year, down from US$1.8 billion last year, while Asian carriers' earnings will slide from US$2.9 billion to about US$2 billion.

"If we are looking for a common villain, it is fuel," he said.

Nevertheless, he said European airlines are benefiting from consolidation and aggressive fuel-hedging, while Asian airlines have very low labor costs and lots of long-haul flights.

The soaring price of jet fuel, along with inefficient operations, helped thrust money-losing US carriers into Chapter 11 reorganization last year, including Delta and Northwest, which are still restructuring under the protection of a bankruptcy court.

High fuel prices are likely to stick around, Bisignani said, although he blamed the petroleum industry itself for contributing to the problem by not investing enough of its record profits in new oil-refining capacity.

Bisignani said the industry's break-even oil price has climbed to about US$48 a barrel -- up from US$22 a barrel in 2003 -- thanks to several years of aggressive cost-cutting by airlines.

He also credited carriers with keeping a lid on their carrying capacity, which has helped to boost the percentage of seats filled and thereby facilitate price increases.

Just last week Southwest Airlines Co led a broad fare hike across the airline industry, raising ticket prices by up to US$10 each way to offset surging fuel costs. The move was matched by most other major US airlines.

One area where the US airline industry shines, Bisignani said, is in safety. Globally, the accident rate last year was 0.76 per million flights. But the rate for US carriers was just 0.2 per million flights.

The Air Transport Association, a Washington-based trade group, estimates that US carriers took in 12.87 cents of revenue per passenger for each domestic mile they flew in February. That is up 12 percent from a year earlier.

Calyon Securities analyst Ray Neidl noted that in a recent report that airlines were also benefiting from a higher percentage of seats filled, or load factor. He said in a report that 76.2 percent of seats were filled on major carriers' US flights last month, compared with 73.2 percent a year earlier.

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