Lufthansa To Buy Swiss
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Airlines around the world are having to cope with rising fuel costs.
updated 4/5/2005 12:15:03 PM ET 2005-04-05T16:15:03

The global airline industry could lose $5.5 billion in 2005 because of continuing high crude oil prices, according to a warning on Monday by Giovanni Bisignani, chief executive of the International Air Transport Association.

The total losses by the world's airlines in the five years from 2001-05 would then exceed $40 billion.

The deficits threaten the survival of several U.S. airlines in particular, with United Airlines and US Airways still struggling to emerge from bankruptcy.

The forecast loss for 2005 is based on an average price for the European benchmark Brent crude oil of $43 a barrel. The May Brent crude oil futures contract rose on Monday by 59 cents to $57.10 a barrel on the International Petroleum Exchange in London. Brent futures hit $57.65 a barrel, the highest since the contract was introduced in 1988. The U.S. benchmark West Texas Intermediate for September delivery hit $60.05 a barrel in New York -- a record high for any oil futures contract in nominal terms and more in real terms than the first oil shock in the 1970s and the first Gulf war.

Bisignani told the AirFinance conference in New York that the air transport industry remained "fragmented, constrained and quite frankly in many places a financial disaster".

He urged governments to deregulate the industry in order to open access to global capital markets, as well as to cut the tax burden and regulate monopoly suppliers led by airports and air traffic control systems. "We see record profits at airports, when airlines have record losses. Airlines do the flying and everybody else makes the money," he said.

He said that with annual growth of 6 percent, global air passenger traffic was growing at twice the rate of gross domestic product. "The problem is that the more we sell, the more we lose."

Oil prices have risen by a third this year, and are up almost fourfold from the 1998 average, causing concern that they will stay high. The European Commission became the latest body to raise its 2005 price forecast, to $50.90 a barrel for Brent, more than 10 per cent higher than its previous estimate. Oil traders said the recent price rises reflected panic among energy consumers.

"We have had a lot of customers who have been waiting for oil prices to come down for some time. Now they have given up waiting and are worried prices will go up again before coming down," said Jose Carlos Cogolludo, managing director of energy sales at JPMorgan in London. "Some have started to panic and are hedging to protect themselves from further price rises."

The Organization of Petroleum Exporting Countries tried to soothe markets by promising to produce more oil. But this was partially offset by the latest production figures from Russia, the second largest producer, which showed output growth has stagnated over the last six months.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.


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