'High fuel prices threaten airline sector'

Wednesday, March 21, 2012

THE airline industry group IATA cut back its 2012 profit forecast for the airline sector to US$3.0 billion (€2.3 billion) from US$3.5 billion yesterday, as tensions in the Gulf push fuel prices up.

If fuel prices were to soar to US$150 a barrel from about US$120 at the moment, some airlines could even go bankrupt, warned International Air Transport Association chief Tony Tyler.

The latest figures foresee bigger-than-expected profits for the global airline sector last year, but a drop of about 60 per cent this year.

Although IATA cited the European debt crisis as the main risk in December 2011, this threat has now been "taken off the table," it said.

Rather, soaring fuel prices amid supply fears spurred by concerns over Middle East supplies are now key threats to the industry.

IATA had based its initial industry earnings estimate on a forecast fuel price of US$99 a barrel in 2012, but prices have now soared to about US$120, with an annual average expected at around US$115.

"This will push fuel to 34 per cent of average operating costs end see the overall industry fuel bill rise to US$213 billion," said IATA.

But if oil prices jump to US$150, "we cannot rule out the possibility of some bankruptcy, all regions will lose in this case, the most losses will be in Europe, but everywhere, there will be significant effects," said Tyler.

"Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses," IATA added.

Tensions between the West and Iran over Tehran's suspected nuclear weapons drive were underpinning oil prices.

Iran insists its nuclear programme is strictly for peaceful purposes, but its threat to close the Strait of Hormuz, a key oil transit, has markets on edge.

Any closure of the Strait could force oil prices to spike at US$150 a barrel, thereby leading to a full year average price of US$135.AFP

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