The good news: the price of a barrel of crude oil has fallen off in recent weeks, the result of a resurgent dollar and weaker demand. The bad news: the world’s airlines are still poised to lose some $5.2 billion in 2008 according to the International Air Transport Association (IATA) www.iata.org.
“The situation remains bleak,” asserts Giovanni Bisignani, IATA Director General and CEO. “The toxic combination of oil prices and falling demand continues to poison the industry’s profitability.”
IATA’s forecast is predicated on $113 per barrel of petroleum, which equates to $140 per barrel of jet fuel.
That $113 figure, while demonstrably better than prices about mid-summer, is still $40 per barrel more than the $73 per barrel average of 2007. All told, the fuel bill for the world’s airlines should run about $186 billion in 2008. That will mean just powering airplanes will account for 36 percent of operating costs. Consider: in 2002, fuel amounted to 13 percent of operating costs. And that, of course, is why airlines are cutting routes, grounding airplanes, and raising airfares all because of fuel.
A Cheapflights observation: while the picture may appear, in Bisignani’s words, “bleak,” some real strides are being made in the development of alternative airline fuels – fuels derived from algae and switch grass, fuels that don’t compete with foodstuffs. Some experts believe the impact of these new fuels should be felt in the next three to five years. It’s not science fiction. The alternatives are real. And when they hit the market in a significant way there could be a renaissance of airline profits and a distinct leveling off of airfares. In the meantime, there are still discount aifares for the taking. Carriers simply can’t afford to raise their rates to the point they drive off large numbers of flyers not in the increasingly deregulated worldwide environment in which they operate.
© Cheapflights Ltd Jerry Chandler
