IATA: Industry a money-loser, thanks to Canadian, U.S. airlines

The airline industry worldwide is going to lose $3 billion in 2006, according to a forecast by IATA. But as in the past several years, most of that loss will be attributable to U.S. carriers, the association said.

The U.S. and Canadian airline industry, IATA projected, will lose $5.2 billion this year if crude oil prices average $66 a barrel and jet fuel $81 a barrel. Airlines in every other region except Africa are expected to post a collective profit, albeit a very small one in the Middle East and Latin America.

Airline executives are not in complete agreement on the reasons, but the ones they offer include the nature of competition from low-cost carriers, the use of fuel hedging, the pace of restructuring, the Asia growth boom and currency advantages.

One argument is that while low-cost carriers are growing rapidly outside of the U.S., network airlines, for the most part, are not facing challenges that affect their hubs.

Hedging, in which airlines prepurchase fuel to protect themselves against price increases, has been used to a much greater extent by non-U.S. carriers.

One U.S. airline executive said that foreign carriers, purchasing fuel in U.S. dollars, often have benefited from currency exchange rates against the weak U.S. dollar.

Some European airline executives contend that U.S. airlines have been slow to restructure relative to European carriers because they received post-9/11 government assistance and had Chapter 11 as a last resort, an option not available to European carriers.

The phenomenal growth in India and China has helped carriers in Asia as well as airlines in a good geographic position to take advantage of that market.

Although the results for airlines in most other regions have been more positive than in the U.S., the industry as a whole is not without problems.

IATA’s 2006 projection is barely any improvement over 2005, as fuel prices are expected to make profits shrink in other regions even as U.S. airlines narrow their losses -- and that’s based on an average price for crude at $66 per barrel. As IATA finished up its World Air Transport Summit and Annual General Meeting, which is where it released its revised forecast for 2006, the per-barrel price reached $73.


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