SFGate: Airlines Face Tough Times Amid Slowdown

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Monday, February 18, 2008 (AP)
Airlines Face Tough Times Amid Slowdown
By GILLIAN WONG, Associated Press Writer


   (02-18) 16:39 PST SINGAPORE, (AP) --

   Improved efficiency has helped airlines better prepare for a possible
global economic slowdown compared to the last major recession, but
expensive fuel continues to hurt bottom lines, an airline industry group
said Monday.

   The airlines "are better prepared because we have a much more efficient
system overall," the International Air Transport Association's chief
executive, Giovanni Bisignani, said on the sidelines of the Aviation
Leadership Summit in Singapore.

   "Simplifying businesses brings into the industry $6 billion in savings.
We've been able to develop new routes and (improve) fuel efficiency,"
Bisignani said.

   Since 2001, the industry has seen labor productivity rise 64 percent,
while nonfuel unit costs have dropped 16 percent and sales and marketing
costs have decreased by 25 percent, according to the association.

   Bisignani said, however, it is still too early to forecast the impact on
airlines' revenues that a U.S. or global slowdown would have and warned
that tough times were ahead.

   "The revenue cycle peaked in 2006 and the negative impact of the credit
crunch is still being calculated. Airlines may be out of intensive care
but the industry is still sick," he said earlier in an opening speech. The
association expects air traffic growth to slow from 5.9 percent in 2007 to
4 percent this year.

   High oil prices are somewhat offsetting the gains made in improving
efficiency, Bisignani added.

   He said the bill for oil spending this year was likely to be about $150
billion, based on an estimated price of oil at $78 a barrel. Fuel makes up
nearly 30 percent of the total operating cost of an airline, he said.

   "Just imagine in 2003, our bill was $44 billion. ... You see how the
impact has changed?" he said.

   Carriers are also in a more vulnerable position now than during the 2001
recession due to mounting debt — which could see airlines headed
toward an economic downturn with little cash to mitigate the fall, he
said.

   "This is an industry that is making $5 billion this year, as a forecast,
but we have $190 billion in debt, so it means we're more vulnerable," he
said.

   Airlines said they were thinking of ways to cope with a potential slowdo=
wn
in the world economy that could impact air traffic.

   "The probability (of a slowdown) has gone up a lot since the turn of the
calendar year," said Singapore Airlines Chief Executive Chew Choon Seng.

   "The aviation industry tends to reflect the state of the economies around
the world, so there will be some (impact) on demand for air travel," Chew
told reporters. "We do have contingency plans mapped out if traffic slows
down. We've some flexibility in deployment and fine-tuning our operating
plans." -------------------------------------------------------------------=
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Copyright 2008 AP

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