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Page added on March 23, 2012

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Emirates Says ‘Whole Load of Airlines’ Will Fail in Fuel Squeeze

Emirates Says ‘Whole Load of Airlines’ Will Fail in Fuel Squeeze thumbnail

Emirates, the biggest airline by international traffic, said more carriers will go bust this year as fuel costs and sluggish economies undermine profitability.

“We can reel off a whole load of airlines that are teetering on the brink or are really gone,” Tim Clark, the Dubai-based carrier’s president, said in an interview. “Roll this forward to Christmas, another eight or nine months, and we’re going to see this industry in serious trouble.”

Airline profits will plunge 62 percent in 2012 to $3 billion, equal to a 0.5 percent margin on sales, as oil prices rise, the International Air Transport Association said this week. Emirates’s fuel bill accounts for 45 percent of costs and may jump by an “incredibly challenging” $1.7 billion in the year ending March 31, according to Clark, who says he’s sticking with a no-hedging strategy rather than risking a losing bet.

“You think you’re going to win, but in the long term you always lose,” Clark said yesterday at the Gulf carrier’s head office near Dubai International Airport. “When we enter into derivatives, betting whatever it may be with counterparties who actually control the price of fuel in the first place, you have to ask yourself, ‘Is that smart?’”

AMR Corp. (AMR1)’s American Airlines is restructuring after filing for Chapter 11 bankruptcy and India’s Kingfisher Airlines Ltd. (KAIR) may lose its license as it struggles with cash shortages and losses. That’s after Barcelona-based Spanair SA collapsed Jan. 27, followed that week by Hungarian national carrier Malev Zrt. (MALEV)
Bailouts, Bankruptcy

Clark said some private airlines will need to be bailed out by governments in the countries where they’re based, though that will raise aid issues with the European Union and other parties.

In the U.S., more filings for Chapter 11 protection are likely, while smaller carriers operating in the Indian Ocean region and in Africa face “difficulties,” the executive said.

“This is what the fuel prices are doing,” he said. “It’s about time somebody sitting there, controlling the fuel prices, began to look a little bit more seriously at the devastation it’s causing, not only to airlines but to the global economy.”

The industry couldn’t survive a further 10 or 15 percent increase in fuel prices, especially with the European Union’s carbon emissions trading system about to add to costs, he said.

At Emirates the fuel bill, while not over budget, has “zapped the bottom line,” and that will be evident in annual results scheduled to be published next month, Clark said.

bloomberg.com



11 Comments on "Emirates Says ‘Whole Load of Airlines’ Will Fail in Fuel Squeeze"

  1. Beery on Fri, 23rd Mar 2012 11:39 pm 

    “It’s about time somebody sitting there, controlling the fuel prices, began to look a little bit more seriously at the devastation it’s causing…”

    Yeah, as if there’s some conspiracy to raise fuel prices for no good reason.

    This is how it starts, folks, with wars in oil-rich nations, food riots in the 3rd World and airlines going under.

  2. Rick on Sat, 24th Mar 2012 12:25 am 

    The airlines will be the first to go. Peak Oil is here.

  3. DC on Sat, 24th Mar 2012 12:32 am 

    Jet travel would have failed long ago, if not for govts constantly bailing out insolvent airlines, the US is king for this, but not alone. Remove the massive public subsidies and air travel would collapse in a week. All the money and fuel we waste on planes is not going to trains or passenger ships. Govts however keep resurecting zombie airlines from the dead over and over…they just cant seem to help themselves…

  4. BillT on Sat, 24th Mar 2012 2:13 am 

    The US will nationalize the last airline to survive and air travel will only be for the rich once again. Nothing unexpected here.

    But, I can fly to Hong Kong from Manila for about $ 150.00 round trip or to Pennsylvania for $ 1,600.00. That’s cheap travel. Less than 7 cents per mile.

    If I were to drive that distance (if it were possible) even in a 40 mpg car, it would cost me $2,700.00+ just for gas, and at $ .60 per mile actual cost of owning and driving a car it would cost $ 14,400.00+ and take 400+ hours instead of 22. THAT is the value of oil…

  5. Kenz300 on Sat, 24th Mar 2012 2:49 am 

    Airlines will be the first to go…..
    What will be next….the global supply chain? Shipping goods around the world may not make sense with high oil prices.

  6. agashe on Sat, 24th Mar 2012 3:28 am 

    right say billT

  7. Ken Nohe on Sat, 24th Mar 2012 6:24 am 

    No airlines will not be the first to go! This “honor” will come to people much lower on the food chain in Asia and Africa. But yes eventually we will cut down on air travel. It is already happening. 747-400 being replaced by 777 which will soon be replaced by 787 for another 20% saving on jet-fuel. But in a few years this won’t be enough and we should see new, far more efficient propeller planes back on the market. 30% slower but 50% less fuel! The only reason these planes are not there yet is that the manufacturers do not believe that high prices are here to stay. Soon, they will!

  8. BillT on Sat, 24th Mar 2012 6:43 am 

    Ken, unfortunately, you are correct…maybe. The whole globalization system relies on the global financial system…basically, the Us Dollar. When that crashes…ans it will…then the reset may just give those billions on the bottom some room to exist. Almost ALL international trade is dollar based. Countries need dollars to buy oil so they sell their goods for dollars instead of yen or pesos.

    THAT is why we are destroying any leader who tries to start a new currency for trade, like Saddam and Gaddafi and now Iran…but, we ignore China who is really changing the game because they hold our chain.

    Yes, international trade is already eroding. that erosion will accelerate over the next few years. As is the airline industry. And, no, we will not go back to propellers. We will go back to coal trains and sailing ships before this century is over.

  9. Arthur on Sat, 24th Mar 2012 9:54 am 

    It makes perfect sense that the last remaining airlines will be based in those territories that will harbor the last remaing oil, before they inevitable will fall back on their traditional camels for transportation. In four generations people will start to doubt all these wild stories that once people were able to fly.

  10. BillT on Sat, 24th Mar 2012 10:41 am 

    Arthur, I only hope that there are human generations then to think about us. We may irradiate the world before that in our greed and hate and I doubt roaches would really care what they inhabit. ^_^

  11. Arthur on Sat, 24th Mar 2012 10:53 am 

    Bill, let’s hope that MAD (what’s in a name?) will keep functioning. If not, may the devil come to get us.

    The Arabs have a phrase to describe what’s coming: “My grandfather rode a camel. I drive a car. My son travels in jet airplanes. His son will ride a camel.”