Home' Asian Aviation : AAV April 2011 Contents Andrzej Jeziorski
The recovery in air travel demand looks increasingly
convincing. Cargo volumes are continuing to grow. It must
be time for something new to worry about: how about oil
True, it s not all that long ago that the industry last had to
deal with peak oil -- July of 2008, in fact, when oil hit an all-
time high of US$145 a barrel. By December of that year, the
price had dropped down to just over US$30 a barrel, trading
between US$35 and US$82 a barrel throughout 2009, as
the global economy languished in recession.
But now, with unrest erupting all over the Middle East
and a UN-mandated no- y zone being imposed over Libya,
now in the throes of civil war, oil prices are skyrocketing
again. On 31 January, the Brent crude oil price hit US$100
a barrel for the rst time since October 2008, on concern
about the escalating unrest in Egypt.
According to energy information provider Platts, the
re nery price of jet fuel stood at US$134.4 a barrel as of
8 March -- up 1.6 percent from a week earlier, 12.3 percent
from a month earlier, and as much as 49.4 percent from a
As reported in this issue, Malaysia Airlines (MAS) has
blamed oil prices for its 52 percent drop in annual pro t for
2010. And now the International Air Transport Association
(IATA) has downgraded its industry-wide 2011 pro t
forecast for the same reason.
IATA has downgraded its pro t outlook to US$8.6 billion
from its previous US$9.1 billion estimate, announced
in December 2010. at represents a 46 percent drop in
net pro t compared with the US$16 billion earned by
the industry last year. With expected industry revenue
of US$594 billion, the pro t is equivalent to a net pro t
margin of 1.4 percent.
"Political unrest in the Middle East has sent oil over
US$100 per barrel. at is signi cantly higher than the
US$84 per barrel that was the assumption in December,"
notes Giovanni Bisignani, IATA s director general and chief
executive o cer. "At the same time, the global economy
is now forecast to grow 3.1 percent this year -- a full 0.5
percentage point better than predicted just three months
But, he adds, stronger revenues will provide only a partial
o set to higher costs. Pro ts will halve compared with last
year and margins will be "pathetic".
IATA has now raised its 2011 average oil price assumption
to US$96 per barrel of Brent crude (up from December s
US$84 per barrel), in line with market forecasts. Including
the impact of fuel hedging, which is roughly 50 percent of
expected consumption, this will increase the industry fuel
bill by US$10 billion, to a total of US$166 billion.
Compared with 2010, oil prices are now expected to be
20 percent higher this year, bringing fuel to 29 percent of
total airline operating costs (up from 26 percent in 2010).
Expanding economies mean that airlines have the
opportunity to recover some of these added costs with
additional revenue. For example, since early 2009, rising
oil prices added 25 percent to unit costs while average fares
(excluding surcharges) rose 20 percent. But this year, IATA
says higher revenues are not expected to be su cient to
prevent the rise in oil prices from causing pro ts to shrink
On an upbeat note for the region, Asia-Paci c carriers are
expected to deliver the largest collective pro t of US$3.7
billion and the highest operating margins of 4.6 percent.
Even so, this substantially lower than the US$7.6 billion that
the region s carriers made in 2010 and from the previously
forecast US$4.6 billion for 2011.
While the strong economic growth in the region is still
driving pro tability, anti-in ationary measures in China are
slowing trade and air cargo demand. IATA notes that the
Asia-Paci c region is more exposed to higher fuel prices, due
to relatively low levels of hedging. n
Orders for Airbus s re-engined A320neo development of its
best-selling single-aisle jetliner family are rolling in, and rival
Boeing has yet to respond in public.
On 16 March, Germany s Lu hansa became the latest
airline to jump aboard, with the airline s super visory board
approving an order for 24 A320neo and ve A321neo
aircra . at brings total commitments for the neo since
its launch in December to an impressive 330, with Airbus
promising "more to come".
Boeing s response to date has been to downplay the
signi cance of the new product, focusing instead on the still-
untapped development possibilities of its current 737NG
line, with its current CFM International CFM56 engine.
But the surge of interest in the re-engined A320 shows the
market is champing at the bit for more economical single-
aisle aircra . With new competitors entering the market
from Bombardier, COMAC, Embraer and Russia s United
Aircra , pressure is increasing on the US manufacturer to
show its hand.
Boeing has said little of substance about a potential
successor to the 737, except that the technolog y that would
make the investment in a clean sheet design worthwhile
will only become available towards the end of this decade.
e US company s own market outlook says, however, that
"there will be a wave of single-aisle aircra retirements in
the 2015 to 2017 timeframe as many ... older aircra reach
25 years of age".
With rival single-aisle products already available by that
time o ering economic advantages over the 737NG, Boeing
risks getting le behind in a market it once dominated. n
Fuel prices soar -- again
Boeing slow on neo response
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