$1 per Barrel for Oil = $1 Billion Loss for Airlines

Freight volumes for the first five months of 2004 are 12.2% ahead of 2003 and 13.6% ahead of 2000, the "last normal year" for the industry, according to the International Air Transport Association (IATA). North American airfreight increased 5.7% year on year or 11.9% when compared with 2000. Asia-Pacific volumes rose 12.9% in the first five months when compared with 2003 or 22.3% from the same period in 2000.

With oil prices adding up to $1 billion per month to airline costs, the industry could remain unprofitable for yet another year, according to Giovanni Bisignani, director general and CEO of IATA. The industry had based a $3 billion profit projection on an average oil price of $30 per barrel. At $33 per barrel, the industry could break even, he pointed out, but at $36, the industry can expect a $3 billion loss.

Though the global industry was showing progress, North American carriers were seeing first-quarter passenger traffic 2.8% below 2001. On the other hand, Asia-Pacific was dynamic. Passenger traffic was up 8.7% over 2001 and economic recovery in Japan could push that higher. "Overall growth in Asia is also a reminder of a common theme," said Bisignani, "the importance of cargo." While cargo was up 15.5% worldwide over 2001, volumes rose 25.2% in Asia-Pacific. "Industry-wide, cargo was a financial lifeline for many airlines," he added.

Looking ahead to the challenges facing the industry, Bisignani said, "Cost flexibility has never been more critical - and this includes labor." He continued, referring to U.S. airlines, "It is incredible that airlines go bankrupt or enter Chapter 11 before workers accept the case for change."

Commenting on security costs, Bisignani said the U.S. has set an example for the rest of the world to follow, stating, "Paying for security is not a subsidy, it is a state responsibility."

Bisignani closed on a positive note, saying that by 2010, the airline industry will have 600 million more passengers and 7 million more metric tons of cargo than today, but, he cautioned, without fundamental change, that future was at risk.

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