Asian airlines facing record losses

Airlines throughout Asia are struggling to lower operating costs as the high cost of fuel and a decrease in passenger demand have created an uncertainty that has seen some carriers go out of business.

The International Air Transport Association (IATA) released a gloomy forecast in June, projecting a loss of $6.1 billion in 2008 across the airline industry worldwide. This is in sharp contrast to the $4.5 billion in profit it was forecasting in April – and it’s blaming the negative turnaround on sky-high fuel prices.

Asia’s third most valuable airline, Cathay Pacific, issued a profit warning in early July, and Australia’s Qantas is set to cut 1,500 jobs and forgo its plans for growth.

Jet fuel prices have come down from the $181 per barrel peak that was reached earlier in July, but the current prices are still nearly 80 per cent higher than they were a year ago.

“It’s certainly right up there for being one of the more challenging years that this region has ever faced,” commented Derek Sadubin, of Sydney’s Centre for Asia Pacific Aviation.

“What we have now is a sustained increase, an extreme increase, in their chief input in fuel, so it’s going to be a question of how these airlines can adapt.”

Nearly all airlines in Asia have increased their surcharges in an attempt to counterbalance the rise in jet fuel prices – which actually make up around 40 per cent of a carrier’s operating costs.

Some carriers, such as Singapore Airlines and Qantas, have hedged at least a part of their fuel needs, analysts maintain that real recovery in the industry overall requires a drop in the cost of fuel.

www.iata.org