A recent press release by the IATA showed that the world airlines maybe looking at the bottom of a barrel (ok not their exact words) with oil prices now being much in fashion and steadily climbing north to $150 add that with Alexei Miller, Gazprom's chief executive bigging it up to $250 per barrel by the end of 2009; its now panic on streets of Barcelona and maybe soon London and Birmingham what with this proposed tanker strike on Friday.
As we spare a thought for the price of petrol/gas at the pumps, spare a little change for the airlines (they may need it!) with overall aviation jet fuel prices up 93% over the last year, industry losses could soon reach -$8bn. The first IATA press release expected a $2.3bn loss for 2008 when oil stood at $86bl, but now with every dollar increase adding another $1.6bn to costs and measure it with today’s price at $141 this would add another $66bn to costs (oil is nearly 40% of expenditure, 2007 costs added up to $136bn this year if prices raise further will tip it to nearly $240bn!
As we spare a thought for the price of petrol/gas at the pumps, spare a little change for the airlines (they may need it!) with overall aviation jet fuel prices up 93% over the last year, industry losses could soon reach -$8bn. The first IATA press release expected a $2.3bn loss for 2008 when oil stood at $86bl, but now with every dollar increase adding another $1.6bn to costs and measure it with today’s price at $141 this would add another $66bn to costs (oil is nearly 40% of expenditure, 2007 costs added up to $136bn this year if prices raise further will tip it to nearly $240bn!
According to Giovanni Bisgnani IATA Director General & CEO these are ‘uncharted territories’ for the $3.5 trillion industry which employs 32m people worldwide.
“Unless fuel prices rapidly retreat, it stands to reason that additional carrier bankruptcies cannot be ruled out," – A recent JP Morgan Securities report stressed. With mergers and consolidation now becoming no brainers for cost saving synergies it looks like the low costs/boutique carriers and also some of the major airlines now going over to the shelf picking up the book on bankruptcy and filing itself under Chapter 11, many more than in 1991 and some in post 9-11.
Will there be another Northern Rock but with airlines this summer? renationalisation maybe could be back on the cards, reduced schedules, and penny pinching extras like AA’s $15 baggage handling charge, Air New Zealand's recent $4 per per passenger, and not to mention the overall rise in price of tickets generated by lack of availability overall, may mean that travel industry is at place where fear, uncertainty, and doubt could be the order of the day.
A study into the working capital of all the major airlines would be the greatest indicator of their vulnerability and cash liquidity who will fall first? (any takers for such research??) and in light of Mesa and Silverjet's recent woes these could be the tip of the oncoming iceberg. This analogy would melt if it wasn’t for the apparent ability to hedge the oil price increases; but I was completely blown away by that only a small percentage of Airlines use these financial derivative instruments to protect themselves against future fluctuations .
Southwest seem to be more forward thinking and have tied most of their prices until 2012 at $63 per barrel. The airlines industry’s stance is that 'risk management was not one of their core competencies' stating that jet fuel is not on any organised futures exchange, although Southwest added “we have found that financial derivative instruments in other commodities, such as crude oil, and refined products such as heating oil and unleaded gasoline, can be useful in decreasing exposure to jet fuel price volatility," So even if the airlines did start to pick up their phones and make a call to their new/now very happy commodity brokers the current spot prices will most certainly put them on one!
So it looks like, what it looks like, cash crush or cash crunch, either way the skies could soon get a bit quieter over the next few years. Lets ponder the near future, according to Tony Hayward CEO of BP that there are known oil reserves of 1.24tn barrels enough to meet current production levels and demand until 2049..
I’m off for my hols for a couple of weeks and no I won’t be flying! Going to experience the delights of Somerset and like a lot of travellers this year, 'staying local!
“Unless fuel prices rapidly retreat, it stands to reason that additional carrier bankruptcies cannot be ruled out," – A recent JP Morgan Securities report stressed. With mergers and consolidation now becoming no brainers for cost saving synergies it looks like the low costs/boutique carriers and also some of the major airlines now going over to the shelf picking up the book on bankruptcy and filing itself under Chapter 11, many more than in 1991 and some in post 9-11.
Will there be another Northern Rock but with airlines this summer? renationalisation maybe could be back on the cards, reduced schedules, and penny pinching extras like AA’s $15 baggage handling charge, Air New Zealand's recent $4 per per passenger, and not to mention the overall rise in price of tickets generated by lack of availability overall, may mean that travel industry is at place where fear, uncertainty, and doubt could be the order of the day.
A study into the working capital of all the major airlines would be the greatest indicator of their vulnerability and cash liquidity who will fall first? (any takers for such research??) and in light of Mesa and Silverjet's recent woes these could be the tip of the oncoming iceberg. This analogy would melt if it wasn’t for the apparent ability to hedge the oil price increases; but I was completely blown away by that only a small percentage of Airlines use these financial derivative instruments to protect themselves against future fluctuations .
Southwest seem to be more forward thinking and have tied most of their prices until 2012 at $63 per barrel. The airlines industry’s stance is that 'risk management was not one of their core competencies' stating that jet fuel is not on any organised futures exchange, although Southwest added “we have found that financial derivative instruments in other commodities, such as crude oil, and refined products such as heating oil and unleaded gasoline, can be useful in decreasing exposure to jet fuel price volatility," So even if the airlines did start to pick up their phones and make a call to their new/now very happy commodity brokers the current spot prices will most certainly put them on one!
So it looks like, what it looks like, cash crush or cash crunch, either way the skies could soon get a bit quieter over the next few years. Lets ponder the near future, according to Tony Hayward CEO of BP that there are known oil reserves of 1.24tn barrels enough to meet current production levels and demand until 2049..
I’m off for my hols for a couple of weeks and no I won’t be flying! Going to experience the delights of Somerset and like a lot of travellers this year, 'staying local!
