Last summer with oil prices approaching $150 a barrel, the world’s airlines were approaching collapse. The drop in oil prices in the second half of 2008 gave them a temporary reprieve, but now a combination of rising prices and falling traffic is again increasing the financial pressure.
Last week the International Air Transport Association reported that 2009 airline losses are expected to be very bad; IATA will release a new loss forecast this week. Fifty major airlines reported losses totaling $3.3 billion during the first quarter. Many airlines used the futures market to hedge part of their fuel requirement and ended up paying well above spot prices. Although the airlines have cut costs and introduced baggage surcharges, steep declines in international and premium class travel have cut into profits. Rising unemployment will not help discretionary travel. The outlook for the industry is not good and the IATA is forecasting increased mergers and calling for a lifting of route restrictions as the carriers struggle to remain in business.
Strange as it may seem in this environment, last week United Airlines asked Boeing and Airbus for bids on 150 new, more fuel efficient airliners valued at $10 billion. The airlines must be expecting a federal bailout, for given the prospects for passenger traffic and fuel prices over the next five years, replacing the fleet is unlikely to be an economical proposition.