Business | Aviation
Airlines remain cautious despite falling fuel prices
Airlines remain cautious about their profit outlook despite the fall in fuel prices that has eased some cost pressure.
- By Shakir Husain, Staff Reporter
- Published: 23:37 September 17, 2008
- A plane is refuelled at Miami International Airport. Britain's XL Airways ceased operations last Friday when it became unable to cope with high fuel costs.
- Image Credit: Bloomberg News
Dubai: Airlines remain cautious about their profit outlook despite the fall in fuel prices that has eased some cost pressure.
Global oil prices have dropped more than $50 per barrel from their record levels reached in mid-July.
The International Air Transport Association (IATA), a Geneva-based industry group representing some 240 airlines, said earlier this month the global airline industry would post losses of $5.2 billion this year based on an average crude oil price of $113 per barrel, which translated into $140 a barrel for jet fuel.
This was a sharp revision from a forecast in December that airlines would see a profit of $5 billion this year.
Crude oil has traded at more than $100 per barrel this year and exceeded $147 in July.
Unable to cope with rising fuel costs, about 25 airlines have ceased operations this year.
The latest to fail was Britain's XL Airways, which ceased operations last Friday.
Airlines have been forced to raise fuel surcharges, passing some of their cost burden to passengers.
Adel Ali, chief executive officer of Sharjah-based budget carrier Air Arabia, said though the oil price drop would be welcomed by people in the industry, the relief would be felt only if prices remain stable at lower levels for a sustained period.
Airlines buy their fuel in advance so the benefits of lower prices will take time to work through their systems.
"Airlines have not benefitted as of today from the reduction in the fuel price. They will benefit from it probably next month. There are other cost pressures, fuel is just the biggest one for the airline business," Ali said.
For some airlines, the cost of fuel can be as much as 50 per cent of their operating costs.
Readjusting the fuel surcharge in view of lower oil prices remains a difficult decision for most airlines in light of general cost escalation.
"This year is going to be a lot tougher than last year. We already know because of the uncontrollable impact of oil prices that profits will be affected, but by how much remains to be seen," an Emirates spokes-person said when asked about the impact of high fuel prices on the company's financial performance.
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