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Rising oil prices to inflict more pain on fragile airlines

18-Sep-2009

The financial prospects for airlines for 2010 are for more red ink - although considerably less than 2008 and 2009, according to IATA's latest financial forecast. The industry trade body has predicted combined airline losses of USD3.8 billion in 2010, and has revised its 2009 loss forecast from USD9 billion to USD11 billion.

Part of this is the underlying weakness in passenger demand, and the attendant falls in yields. But, the increasing price of oil, as global economies pick up, provides yet another considerable cause for concern for the fragile industry.

IATA’s forecast for the total industry fuel bill for 2009 is USD115 billion, some USD57 billion lower than the total in 2008. Fuel made up 31.9% of the total industry cost base in 2008, compared to a forecast 25% this year. Fuel has averaged 21.6% of costs for the first eight years of this decade.

2000-2009 industry fuel prices

 

2001

2002

2003

2004

2005

2006

2007

2008

2009F

Industry costs (billion)

319

311

323

376

409

450

488

539

459

% change

0.5

-2.7

4.0

16.2

8.9

10.1

8.4

10.4

-14.9

Fuel costs (billion)

43

40

44

65

91

107

134

172

115

% of total costs

13

13

14

17

22

24

27

32

25

Brent (USD per barrel)

24.7

25.1

28.8

38.3

54.5

65.1

73.0

99.0

61

Even with the large drop off in fuel prices seen since the second half of 2008, airline fuel bills this year will still be greater than they were over the first three years of the decade, combined.

USD72 per barrel oil in 2010 - forecast

IATA expects the price of crude oil (Brent) to increase from an average of USD61 per barrel this year, to USD72 per barrel in 2010, “further squeezing airline operating cash flows”.

Furthermore, the crack spread is expected to return to normal levels again in 2009, driving aviation jet fuel from USD72 per barrel this year to a forecast USD82 per barrel in 2010.

Evolution of IATA's fuel forecasts (Brent, per barrel)

Forecast date

2008

% of costs

2009

% of costs

2010

% of costs

Dec-2007

USD78

30%

       

Mar-2008

USD86

32%

       

Jun-2008

USD106.5

36%

       

Aug-2008

USD113

36%

USD110

40%

   

Sep-2008

USD113

36%

USD110

40%

   

Dec-2008

USD100

32%

USD60

29%

   

Mar-2009

   

USD50

25%

   

Jun-2009

   

USD56

23%

   

Sep-2009

   

USD61

25%

USD72

26%

Oil back above USD70 per barrel

For the week to 15-Sep-2009, the underlying crude price fell 0.4% to USD70.81 per barrel, staying above USD70 per barrel for most of the period.

WTI spot price: Jan-2009 to Sep-2009

Jet fuel prices have retreated slightly, with Amsterdam-Rotterdam-Antwerp exchange prices down 1.3%, Singapore falling 0.5% and Los Angeles prices falling 0.2%.  New York Harbor was up 0.8% and US Gulf Coast up 1.0%.

Daily jet fuel prices (kerosene, cents per gallon) at New York, US Gulf Coast, Los Angeles, Amsterdam, Singapore: 05-May-09 to 015-Sep-09

Major oil market movements, USD cents per litre

 

08-Sep-09

09-Sep-09

10-Sep-09

11-Sep-09

14-Sep-09

15-Sep-09

one week Change

12 month Change

New York Harbor

175.82

178.1

178.72

173.029

173.89

177.28

0.8%

-46.8%

U.S. Gulf Coast

174.32

175.6

175.97

171.65

172.64

176.03

1.0%

-56.4%

Los Angeles

180.57

180.85

181.72

176.4

176.39

180.28

-0.2%

-35.1%

Amsterdam-Rotterdam-Antwerp

182.8

183.25

184.54

178.87

179.1

180.38

-1.3%

-39.0%

Singapore

176.31

180.71

182.62

180.36

174.17

175.36

-0.5%

-37.3%

WTI Spot

71.08

71.27

71.95

69.34

68.86

70.81

-0.4%

-25.9%


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