Fuel costs now account for a staggering 43 per cent of airline costs, compared to just 12 per cent a decade ago, a senior industry official has said, emphasising its impact on airlines.
“If by the end of the year oil prices have reached around USD 130-140 per barrel, watch this space, there will be some casualties. I expect that airlines which will struggle particularly are those on the periphery,” Emirates Airline President Tim Clark said.
With Emirates Airline having mitigated some of the impact by implementing small fuel surcharges and managing business costs, he said that airlines with weaker balance sheets and less flexibility would suffer if high prices continued.
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Mr. Clark was addressing visitors and delegates at the Arabian Travel Market being held here from May 2-5.
Speaking at ATM 2011 in a candid one-on-one seminar with leading aviation consultant John Strickland, Clark discussed the challenges facing commercial aviation along with the resilience of the regional sector.
High fuel prices was an area of focus, with oil now exceeding USD 120 per barrel, up from USD 86 per barrel a year earlier according to figures from the International Air Transport Association (IATA).
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Commenting from the sidelines of the ATM, Reed Travel Exhibitions Group Exhibition Director Mark Walsh said: “Despite the high oil prices, lingering effects of the economic downturn impacting many industries and unrest in some parts of the region, the Gulf’s aviation sector is displaying strong growth.”
Mr. Clark also discussed the controversial impact of traffic rights at international airports, regional unrest, environmental standards and the lingering effects of the global economic downturn.
With regulations in Canada and Germany restricting Emirates’ landing rights at airports in some cities, Clark said he respected these decisions while explaining, “there are always ways over, through or around such obstacles“.
Despite the difficulties, Clark was also optimistic, particularly given the continued strength of Emirates and other Middle East carriers.
The impressive performance of Emirates and other regional airlines, including Etihad Airways, Qatar Airways, Oman Air and others underpins his belief in the continuing strong value proposition of commercial aviation. Emirates Airline reported profits of USD 925 million for the first half of the 2010—2011 financial year, up 350 per cent on 2009-2010.
It also plans to expand its fleet of 152 aircraft, which includes 15 Airbus A380s, with 200 more jets on order over the next eight years.
Recent forecasts from the IATA indicate Middle East carriers expect to return a profit of USD 700 million for the year, a considerable improvement on the USD 400 million previously forecast.
Negative impacts in some unrest-affected areas are balanced by the Gulf region, which benefits from economic activity related to high oil prices and a large share of the global long-haul market.