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More airlines fold as fuel prices soar: IATA

25 airlines went bust or stopped operations in the first half of this year alone. -AFP

Tue, Jul 08, 2008

GENEVA, SWITZERLAND - TWENTY-FIVE airlines went bust or stopped operations in the first six months of this year and more could fold as fuel prices soar, a spokesman for aviation industry association IATA warned.

'In the last six months we suspended 25 airlines from the settlement system. Suspension occurs when an airline goes bankrupt or ceases operations. This is more concentrated than at any time in the history of the system,' IATA spokesman Anthony Concil said.

The list included airlines big and small from all regions, such as Cameroon Airlines, Denver-based Frontier Airlines and UK-based business class airline Silverjet.

In comparison, in the six months following the attacks in New York and Washington on September 11, 2001, only eight airlines folded, including Swissair, Belgian flagship carrier Sabena and Australia's Ansett.

While Mr Concil would not speculate on airlines that were vulnerable to bankruptcy in the coming months, he said: 'Certainly the high price of fuel is having an enormous impact on the industry and we do expect the list of 25 will grow.'

The IATA payment system is used by most of the carriers that are part of the association.

When a customer buys an airline ticket from a travel agency, the agency pays IATA, which then credits the account of the carrier in question.

But when an airline is threatened with bankruptcy, it is suspended from the system in order to ensure that funds are available to reimburse customers when necessary.

With the explosion in fuel prices, airlines are increasingly finding themselves on the line.

Concil said that every dollar increase in crude oil translates to 1.6 billion dollars (S$2.18 billion) in additional costs to the aviation industry.

Brent North Sea crude has soared from about 75 dollars in July last year to a high of 146 this July.

Consequently, the price of jet fuel has also surged. For the week ending June 27, jet fuel prices were 171.90 dollars per barrel, or almost twice that of a year ago.

While fuel prices used to make up just 13 per cent of airline costs, they were now fast reaching 35 per cent of costs, estimated IATA.

In a June financial forecast, IATA said the problem was that the 'revenue cushion that allowed the fuel cost surge to be absorbed in the four years to 2007 has gone'.

It now expected 'significant net losses in 2008 of between 2.3 and 6.1 billion dollars' for the industry.

But beyond fuel price inflation, the sombre economic backdrop was a double whammy to the dire situation.

IATA said in March, business travel - which contributes significantly to revenues and profits - contracted by the 'largest amount seen since 2003'.

Economy travel growth meanwhile, slowed to less than 1.0 per cent at the end of the first quarter, compared to over 6.0 per cent last year.

All these developments add further pressure to ailing airlines such as Italy's Alitalia.

The ANSA news agency reported in late June that the airline's chairman said the carrier was facing a 'last chance' to secure a rescue plan.

'In a few days, we will know if the advising bank, Intesa Sanpaolo, is in a position to present an appropriate recovery and development strategy,' he was quoted as saying.

Intesa Sanpaolo was tasked with advising the airline on its privatisation.

Alitalia, in which the government has a 49.9 per cent stake, is currently losing some three million euros per day because of lower revenue and higher oil prices, according to the Rome daily Il Messaggero.

If a rescue plan fails to materialise, the airline could well join IATA's list of unfortunate carriers. -- AFP

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