IATA's Bisignani says oil price will wipe out 2008 profits

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Rising oil prices and weakening economic conditions will drive the world's airlines back into losses this year after a return to profitability in 2007, according to the International Air Transport Association's latest earnings forecast downgrade.

Director general and chief executive Giovanni Bisignani issued the grim warning in his state of the industry address at IATA's annual general meeting in Istanbul, when he said high fuel prices and slowing traffic growth represent "another perfect storm".

"After enormous efficiency gains since 2001 there is no fat left and skyrocketing oil prices are changing everything. If the consensus of experts is correct and oil averages $107 per barrel [Brent], the fuel bill will be $176 billion, $40 billion more than in 2007. This would push us back into the red with a loss of $2.3 billion in 2008, $7.9 billion less than 2007," Bisignani said.

"For every dollar the price of oil goes up, costs go up by $1.6 billion. If oil stays at $135 for the rest of the year, losses will be much worse at $6.1 billion. The situation is desperate."

The forecast represents the third earnings downgrade by IATA for the world's airlines for 2008. It originally forecast a cumulative profit this year of $7.6 billion, but in December reduced this to $5 billion.

On 1 April it lowered its forecast to a $4.5 billion profit, but in the weeks since then oil prices have continued to rise sharply, resulting in the new forecast for losses. Last year the world's airlines posted combined profits for the first time since 2000, of $5.6 billion.

Bisignani said in his address to member airlines that a major relook of the industry is needed by governments in terms of regulation, as "the situation is grim".

"Twenty-four airlines went bust in the last six months and $130 per barrel oil is reshaping the industry even as we speak," he said. "In the next 12 months we could face $99 billion in extra costs from oil."