GreenBkk Aviation | Airlines fly low under oil bills

Airlines fly low under oil bills

Airlines worldwide are facing a fuel bill increase of at least 12.2% this year to a combined US$156 billion due largely to higher oil prices.

The $17-billion increase from last year is based on a conservative projection of Brent crude oil averaging $84 a barrel, up from $79 in 2010.

But economists at the International Air Transport Association (IATA) said that with crude now trading above $90 a barrel, the projected figure could turn out to be rather conservative.

The global trade group will likely revise its forecast, which was based on last month's conditions, in March when it releases its next quarterly financial forecast.

Fuel stands to represent 27% of the total operating costs incurred by global airlines this year, up from 26% last year and an increase of 350% from the 2003 bill of $44 billion that accounted for 14% of operating expenses at $28.80 a barrel (see table).

Dearer oil prices, pushed up by stronger global economic growth, will have a detrimental effect on airlines' profitability in 2011 as the industry braces for difficult situation with a pause in its recovery cycle.

This year's combined net profit is projected to slip to $9.1 billion, from $15.1 billion estimated for last year, for a 1.52% margin on revenues of $598 billion, said IATA.

Thai Airways International (THAI) also expects high fuel bills this year in line with dearer oil prices and an increase in consumption volume.

The flag carrier projects a 4.5% rise in fuel consumption from last year's 20 million barrels due to increases in aircraft use and fleet size, said a THAI insider.

The source did not disclose the amount that the airline expects to pay in fuel this year but said last year's bill totalled six billion baht or 33% of the airline's operating costs.

THAI expects crude oil will rise above IATA's latest projection of $84 a barrel, and the airline plans to continue to make use of higher fuel surcharges for passengers and hedging to deal with the situation.

"There is no new low-hanging fruit for us to pick," said the source, adding that the airline has already adopted measures to economise fuel consumption such as more frequent aircraft cleaning.

Last year, THAI hedged 52-53% of its monthly fuel use and will likely continue that rate this year, with a maximum of about 70% at times even though its board has approved a ceiling of 80%.

Credit: Bangkok Post (www.bangkokpost.com)