Delta Set To Report Large Loss This Year
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High oil prices are hitting American carriers especially hard. U.S. airlines had net losses of $9.1 billion last year compared with net profits of $2.6 billion earned by Asia Pacific airlines and profits of $1.4 billion made by European carriers.
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updated 5/30/2005 12:05:39 PM ET 2005-05-30T16:05:39

The high oil price was "destroying" the profitability of the global airline industry, which was facing losses this year of $6 billion, its fifth successive year of net losses, Giovanni Bisignani, director general of the International Air Transport Association (IATA) said Monday.

He told the IATA annual meeting in Tokyo that the aviation industry's fuel bill was forecast to jump from $61 billion last year to $83 billion in 2005 based on an average price of $47 a barrel for the benchmark Brent crude.

The fuel bill, which now accounts for around 22 percent of the industry's total costs has jumped by $39 billion in two years, and has overwhelmed airlines' efforts to cut costs.

Non-fuel costs had been reduced by 2-3 percent a year and were forecast to fall by 4.5 percent this year, said Mr. Bisignani, while passenger traffic was forecast to rise by 5.4 percent.

Global airline cumulative net losses are forecast to reach $42 billion in the five years 2001-05, but the bulk of the losses have come in the U.S.

U.S. carriers had net losses of $9.1 billion last year compared with net profits of $2.6 billion earned by Asia Pacific airlines and profits of $1.4 billion made by European carriers.

Non-U.S. airlines have had some protection from the oil price rise because of the weakness of the U.S. dollar, and U.S. carriers have also been unable to hedge their fuel requirements significantly because of their weak finances and low credit ratings.

Mr. Bisignani said that efficiency gains could not make up for structural problems in the U.S., where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In Latin America the majority of carriers were technically bankrupt.

In Europe consolidation had helped capacity management, while Asian carriers had the competitive advantage of low labor costs, and strong growth fueled by China. India may also be "the next great market for the industry," he said.

Despite the financial problems facing the aviation industry, last year was the safest on record with 1.8 billion people flying safely. There were 428 deaths, the same as in 1945, when 9 million flew by air.

Airlines are under increasing attack from environmental groups as the fastest growing source of global warming gases, but Mr. Bisignani said that inefficient infrastructure was compromising the industry's environmental performance.

The absence of a single European sky with 35 air traffic control organizations was costing the airline industry $4.4 billion a year in wasted fuel, said Mr. Bisignani, while poor airspace design in China's Pearl River delta region was wasting $300 million a year.

Inefficiency in air traffic control was the source of up to 48 million tons of unneeded carbon dioxide emissions.

The airline industry had also been responsible itself for its own "financial mess," however, said Mr. Bisignani. It had focused too much on market share and had failed to match capacity to demand. It had been slow to use the internet, had been "too weak" both with labor and with suppliers.

IATA is driving a campaign to simplify the airline industry with the aim of cutting costs by around $6.5 billion a year. It is aiming to achieve 100 percent electronic ticketing by the end of 2007, up from 40 percent by the end of last year. It is pushing the case for common-use self service check-in kiosks at airports, and is promoting the use of radio frequency identification devices (RFIDs) to track baggage.

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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