|
|
| • EXCH RATES |
|
Baht/$ 33.51/56
Bid/Ask
|
GOLD |
14,350
+ 350
|
|
BOONSONG KOSITCHOTETHANA
The airline industry is in distress and calling Mayday. As oil prices continue to soar beyond imagination and air travel demand is weakening due to global economic slowdown, the industry is bracing for another perfect storm with greater dimension than before.
After reporting their first profit of US$5.6 billion since 2000 last year, the world's airlines are collectively facing a loss of $2.3 billion this year, based on the average expected Brent crude oil price of $107 per barrel in 2008, compared to last year's average of $73 a barrel.
Such a loss could be even be significantly higher, potentially $6.1 billion, if crude oil prices came to an average of $135 a barrel for the rest of the year, warned the International Air Transport Association (IATA).
If oil experts' consensus of an average oil price of $107 a barrel is correct, the airlines' fuel bills will be $176 billion, $40 billion more than in 2007. For every dollar the oil price goes up, their costs rise by $1.6 billion.
IATA director general Giovanni Bisignani described the situation as desperate and ''potentially more destructive than our recent battles with all the Horsemen of the Apocalypse combined''.
In the six years to 2006, the airline industry made cumulative losses of more than $40 billion.
Fuel is either the top or the second-highest single operating cost for network airlines, representing some 34% of of the total cost bases. The share was lower at 13% in 2002 when oil prices were more modest.
Skyrocketing prices forced 24 smaller carriers to cease operation or file for bankruptcy in the fist five months of this year, and more casualties are expected.
Late in May, the UK-based business-class-only carrier Silverjet Plc suspended all flights to obtain emergency funding.
April traffic figures compiled by the IATA clearly showed a slowdown with year-on-year international passenger flow growing by 3%, while capacity growth of 5% saw load factors fall to 75.4%.
Those load factors were a 1.5% drop from the 76.9% recorded during the same period last year and the third consecutive monthly year-on-year decline. International cargo demand growth remained sluggish at 3.7%.
At this time last year, IATA was talking about 6.7% growth for the first four months of this year. This year it's 4%.
GLOBAL PHENOMENON
Another set of statistics provided by the Airports Council International (ACI) showed a similar trend.
Global passenger traffic slowed markedly in April, with modest growth of 2% over the same period last year, while domestic traffic fell by 5.4% compared to April 2007.
The ACI said the drop reflected the impact of slowing economic growth and high fuel prices on airline fares and weakening consumer confidence.
The largest domestic market, North America, was down by 13% as a result of flight cancellations (American Airlines' mandatory groundings), ongoing route reduction and carrier consolidation, and the absence of Easter holiday travel (in March 2008 and April 2007).
But freight traffic growth was steady for April, at 4%, with the strongest growth in international traffic, up by more than 5%. Domestic freight grew more modestly at 1%, with the continuing impact of high fuel prices making other modes of transport more attractive.
REACTION TO TURMOIL
Airlines are finding it increasingly more difficult to fully pass on fuel costs to passengers without hurting demand in the wake of slowing economic conditions.
But with jet fuel prices breaking records, carriers are left with no choice but to raise their fuel surcharges more frequently than last year to offset the higher costs.
Airlines last year were able to pass on as much as 40% of the increase in fuel cost to passengers through surcharges when the economy was strong.
Several airlines are shrinking their fleets, decreasing flights by between 10% and 20% and cutting back routes. Worse still, major carriers such as United Airlines and Qantas have grounded aircraft, as well as cut jobs.
American Airlines also announced schedule reductions and a capacity cutback of 12% by the fourth quarter, as it fought to reduce costs in face of the US$130-plus oil prices.
It will only be a matter of days before other similar announcements are made, as more US airlines are grounding some of their geriatric fleets. Reacting to surging fuel costs, Delta Air Lines has cut back on perks offered to passengers.
Airline boardrooms worldwide will now be forced to give serious consideration to capacity cuts, even when they are not yet in the financial danger zone.
Several airlines, including Southwest Airlines, Northwest Airlines and Belgium's Brussels Airlines are slowing speeds and reducing weight on some aircraft in order to reduce fuel costs.
Southwest Airlines started flying at slower speeds a few months ago, projecting it would save $42 million in fuel this year by extending each flight by one to three minutes.
''It's not a dramatic change,'' said Dave Fuller, director of flight operations at JetBlue, which began flying slower two years ago.
Flyers, already beleaguered by higher fares, more delays and long security lines, may not even notice the extra minutes. The extra flight time is added to published flight schedules or absorbed into the extra time already built into schedules for taxiing and traffic delays.
Many airlines, including Thai Airways International (THAI), are looking at nearly 100 ways of cutting fuel use, including more efficient use and load reductions.
Meanwhile, several carriers are quickening the replacement of older fuel-guzzling aircraft with modern, fuel-efficient jetliners in order to reduce oil bills.
SUSTAINABLE SOLUTIONS
At the IATA annual meeting held in Istanbul early in June, airline leaders adopted a resolution calling on governments, airports and industry workers to act promptly to enable the industry to go through the new crisis. They said:
FGovernments must eliminate archaic rules that prevent airlines from restructuring across borders.
FIn view of existing fees and charges, governments must refrain from imposing multiple and additional punitive taxes or other steps that will deepen the crisis.
FState service providers must invest to modernise air-transport infrastructure urgently, eliminating wasteful fuel consumption and emissions.
FBusiness partners, in particular monopoly service providers, must become as efficient as airlines are now. If not, regulators must restrain their appetite with tougher regulation.
FLabour unions must refrain from making irresponsible claims and join the effort to secure jobs in aviation and indeed in other industries.
FIn the interest of the global economy and the flying public, authorities must enforce the integrity of markets so that the cost of energy reflects its true value.
RETRENCHMENT AT THAI
Ballooning fuel prices and slowing traffic have forced THAI to make a prompt and dramatic decision to stay afloat, by rejigging its 10-year business growth plan, including a major fleet modernisation programme which includes the procurement of 65 new aircraft.
Perhaps the most notable measure the THAI board has approved so far was the termination of the high-profile non-stop daily Bangkok-New York flights, which took off on May 1, 2005, starting on July 1, as the prospect of breaking even on the service was dim.
The termination came despite a high cabin factor of as much as 80%, but the percentage of fuel to the total operating costs widens to 55% on this particular route, surpassing the 34% average.
Another crucial decision is to slash the non-stop Bangkok-Los Angeles services from seven flights a week to five, also on July 1, and in October to make a stopover in Osaka before continuing to Los Angeles.
Continuing the New York and Los Angeles routes would result in losses of $120 million a year for THAI.
THAI will also soon terminate another non-stop long-haul flight, Bangkok-Auckland, now at five flights a week. In the future, the flight to Auckland will done through either Sydney or Melbourne, to allow greater operation flexibility.
The flag carrier's 19-point cost-saving plan, which has so far avoided the most sensitive issues such as layoffs and pay cuts, could be upgraded with greater severity if the situation warrants it.
THAI president Apinan Sumanaseni himself was in danger of becoming a casualty. The board attempted to suspend him as the Review went to press but was later overruled. The move was reportedly not related to business performance but had more to do with internal conflicts.
In an earlier interview, Mr Apinan described the impact from oil as far worse than crises in recent years _ 9/11, Sars, bird flu and the tsunami _ in the sense that nobody knew when it would end.
Spiking oil prices have forced THAI's for the near term to focus on survival rather than growth, as it is struggling to break even. Its net profit in the first quarter of this year plunged 48% year-on-year to 2.22 billion baht as its fuel bills jumped 45.4% to 19.56 billion baht from 14.02 billion baht in the same period last year.
AIRPORT TRAFFIC UP
The impact of high oil prices has not yet affected air traffic in Thailand, judging from the first-quarter statistics.
Total passengers through Suvarnanabhumi, Don Mueang, Chiang Mai, Phuket, Hat Yai and Chiang Rai, rose 11.5% over the same period last year to 16.53 million. Combined aircraft movements, both take-offs and landings, increased 6.1% in the first quarter of 2008 to 106,607.
International passenger numbers rose 10.9% to 10.31 million and domestic passengers 12.6% to 6.22 million. Freight increased 7.47% to 343,504 tonnes, 92% of which were inbound and outbound, with the remainder moved domestically.
Prev
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
Next
