Jet fuel prices batter airlines
Deepening gloom: Cathay Pacific said that it had plunged to a loss of US$85 million in the first half of 2008. Picture: AFP
Thursday, August 7, 2008
Cathay Pacific books its first interim loss in five years; airlines mull route cuts
GLOOM in the airline industry deepened yesterday as soaring fuel costs drove Hong Kong's Cathay Pacific to its first interim loss in five years, and Japan's two main carriers considered cutting routes.
Skyrocketing jet fuel prices have battered the airline industry, with carriers worldwide shedding thousands of jobs and scrapping routes as losses mount. Some have gone out of business, while others are threatened by insolvency.
"Global aviation is making a painful adjustment to the new reality of US$100+ oil," Cathay chairman Christopher Pratt said in a statement after the airline, usually among the world's most profitable, tumbled to a six-month loss for the first time since the Severe Acute Respiratory Syndrome (Sars) virus wrought havoc on Asia's aviation industry in 2003.
The cost of jet fuel has jumped about 69 per cent in a year to about US$144 a barrel, and Cathay said its six-month fuel bill soared 83 per cent to almost US$2.5 billion, accounting for 45.3 per cent of total operating costs, up from 33.6 per cent.
"The industry will not survive in its current form," Pratt added, a day after two big European carriers posted quarterly results that reflected the worsening operating environment.
"Cathay Pacific is reducing costs where it can, but there's a limit to how much cost can be saved before quality and brand are compromised and the service proposition to the customer is changed beyond recognition," Pratt said.
Cathay, which owns regional carrier Dragonair and has an 18.1-per cent stake in mainland carrier Air China, posted a January-June net loss of HK$663 million (US$84.95 million) versus HK$2.58 billion in profit a year earlier.
The results included a US$60 million fine for cargo price-fixing charges levelled by the US Department of Justice.
Analysts and fund managers say that although oil prices have eased in recent weeks airlines still need to restructure their costs to fight price volatility.
"Because the cost of oil is beyond your control, you have to focus on other cost elements, which is the key thing to do right now," said Christopher Wong of Aberdeen International Fund Managers Ltd.
Higher fuel costs are prompting carriers to cut routes in a desperate attempt to protect their bottom line.
All Nippon Airways, Japan's second-largest airline, said it may cut services on about 10 domestic and international routes, while the Nikkei business daily said bigger rival Japan Airlines Corp planned to cut flights on 21 routes, including service to London. The cuts could save Japan Airlines up to US$120 million a year, the Nikkei said.
Cathay CEO Tony Tyler said the airline could cut back on the frequency of long-haul routes to the United States.
On Tuesday, Air France-KLM and Spain's Iberia reported quarterly results bruised by economic slowdown and higher fuel prices.
Air France-KLM, the world's biggest carrier by revenue, posted a 59-per cent drop in first-quarter net profit, though fared better than analysts had forecast, while Iberia, which is in merger talks with British Airways, posted a small operating loss.
The International Air Transport Association (IATA) said global air passenger traffic saw its slowest growth for five years in June.
IATA has predicted airlines could lose US$6.1 billion this year.
Reuters
GLOOM in the airline industry deepened yesterday as soaring fuel costs drove Hong Kong's Cathay Pacific to its first interim loss in five years, and Japan's two main carriers considered cutting routes.
Skyrocketing jet fuel prices have battered the airline industry, with carriers worldwide shedding thousands of jobs and scrapping routes as losses mount. Some have gone out of business, while others are threatened by insolvency.
"Global aviation is making a painful adjustment to the new reality of US$100+ oil," Cathay chairman Christopher Pratt said in a statement after the airline, usually among the world's most profitable, tumbled to a six-month loss for the first time since the Severe Acute Respiratory Syndrome (Sars) virus wrought havoc on Asia's aviation industry in 2003.
The cost of jet fuel has jumped about 69 per cent in a year to about US$144 a barrel, and Cathay said its six-month fuel bill soared 83 per cent to almost US$2.5 billion, accounting for 45.3 per cent of total operating costs, up from 33.6 per cent.
"The industry will not survive in its current form," Pratt added, a day after two big European carriers posted quarterly results that reflected the worsening operating environment.
"Cathay Pacific is reducing costs where it can, but there's a limit to how much cost can be saved before quality and brand are compromised and the service proposition to the customer is changed beyond recognition," Pratt said.
Cathay, which owns regional carrier Dragonair and has an 18.1-per cent stake in mainland carrier Air China, posted a January-June net loss of HK$663 million (US$84.95 million) versus HK$2.58 billion in profit a year earlier.
The results included a US$60 million fine for cargo price-fixing charges levelled by the US Department of Justice.
Analysts and fund managers say that although oil prices have eased in recent weeks airlines still need to restructure their costs to fight price volatility.
"Because the cost of oil is beyond your control, you have to focus on other cost elements, which is the key thing to do right now," said Christopher Wong of Aberdeen International Fund Managers Ltd.
Higher fuel costs are prompting carriers to cut routes in a desperate attempt to protect their bottom line.
All Nippon Airways, Japan's second-largest airline, said it may cut services on about 10 domestic and international routes, while the Nikkei business daily said bigger rival Japan Airlines Corp planned to cut flights on 21 routes, including service to London. The cuts could save Japan Airlines up to US$120 million a year, the Nikkei said.
Cathay CEO Tony Tyler said the airline could cut back on the frequency of long-haul routes to the United States.
On Tuesday, Air France-KLM and Spain's Iberia reported quarterly results bruised by economic slowdown and higher fuel prices.
Air France-KLM, the world's biggest carrier by revenue, posted a 59-per cent drop in first-quarter net profit, though fared better than analysts had forecast, while Iberia, which is in merger talks with British Airways, posted a small operating loss.
The International Air Transport Association (IATA) said global air passenger traffic saw its slowest growth for five years in June.
IATA has predicted airlines could lose US$6.1 billion this year.
Reuters
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