IATA: Oil Prices a Threat to Airline Industry's Recovery

GENEVA – High oil prices threaten the recovery of the global airline industry, which is emerging from the crisis caused by last year's SARS epidemic (search) and the Iraq war, the head of the International Air Transport Association (search) said Thursday.

With oil prices near $40 a barrel, "the problem is now on the cost side," said Giovanni Bisignani.

"On average, fuel accounts for 16 percent of airline operating costs. Fuel prices are 55 percent higher than one year ago. This could add between $8 and $12 billion to our annual fuel bill and threatens to strangle our modest projected return to profitability. Instead of flying high, we could be left swimming in red ink."

IATA — which comprises 275 international air companies — said passenger traffic in the first four months of 2004 rose 15.4 percent on the same period a year ago. Freight traffic was up 11.3 percent.

Although those growth rates look high, in reality they are more modest because the year-earlier figures were low as the start of the war in Iraq and the SARS epidemic frightened off many travelers, compounding problems caused by the sluggish global economy.

While the Iraq war had the biggest impact on air traffic in the Middle East, SARS, or severe acute respiratory syndrome, had the greatest effect on Asia. The disease struck hard last March, infecting more than 8,000 people worldwide and killing 774, the vast majority of them in China, Hong Kong and Taiwan.

"The current crisis resulting from sky high fuel prices once again highlights the industry's vulnerability to external shocks," said Bisignani in a statement. "We need to build a new industry structure capable of withstanding external shocks and delivering sustained profitability."

"Airline cost-cutting, restructuring, and re-engineering are not enough — we need to change the industry's structure," Bisignani added, noting that the issue would dominate IATA's June 6-8 annual meeting, in Singapore.