Airline industry fears $6.1 billion loss for 2008


The International Air Transport Association (IATA) announced on June 2 that the airline industry may be facing a collective $6.1 billion loss this year if oil prices hold at their current level (around $135 per barrel). The IATA simultaneously released a more optimistic projection, a mere $2.3 billion loss, which assumes lower oil prices going forward. All this follows a $4.5 billion profit projected in March.

Did you get all that? If so, you're probably wondering what on earth is going on, and the answer to that is simple: soaring oil prices. The proftis estimated in March were based on oil at $86 a barrel, and the $2.3 billion loss was estimated with an average price of $106.5 per barrel for the remainder of the year. However, as IATA Director General and CEO Giovanni Bisignani says, "We also need to take a reality check. Despite the consensus of experts on the oil price, today's oil prices make the $2.3 billion loss look optimistic. For every dollar that the oil price increases, we add $1.6 billion to costs. If we see $135 oil for the rest of the year, losses could be $6.1 billion."

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"Oil is changing everything," Bisignani goes on to say. "In the last six years, airlines improved fuel efficiency by 19 percent and reduced non-fuel unit costs by 18 percent."

As passengers, we're often quick to direct our frustration at the airlines themselves—after all, it's the airlines raising fares and hitting us with one annoying fee after another. But the reality is (and we've said this before) that oil is the de facto cause of the rising cost of air travel.

Because of that, I think it's time we all got used to the fact that air travel as we fondly remember it (full meals, complimentary movies) is fully extinct. In this era of higher fares, more fees, and diminished amenities, air travel is more akin to bus travel than anything else. But with oil prices as high as they are, do you think we can expect anything more?

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