AIRLINES grappling with sky-high fuel prices are expected to lose at least US$2.3 billion (S$3.2 billion) this year, but it is not all doom and gloom.

There are still pockets of growth coming from regions around the world, said Mr Brian Pearce, the chief economist with the International Air Transport Association (Iata).

Asia-Pacific and the Middle East, for example, will continue to see good air traffic growth, and strong carriers such as Singapore Airlines (SIA) and Air France expect to be able to weather the storm as well.

Mr Pearce said at a press conference yesterday: "The bulk of the losses is expected to come from the United States... We are likely to see a sharp fall in profits in Asia and Europe as well, but we still expect to see some profits."

The Asia-Pacific region will also be partly protected from rising fuel prices by the weakening US dollar, as well as higher levels of fuel hedging by carriers.

Iata, which represents about 230 airlines that carry 93 per cent of global international air traffic, discussed these issues at its annual general meeting, which ended yesterday.

A panel discussion headed by chief executives of strong carriers, such as Cathay Pacific and Air France, and aircraft manufacturers Boeing and Airbus firmly believed in this point: That a fall in demand in one region would be covered by an increase in demand elsewhere.

So, while the credit crunch in the US may affect many parts of the world, the blows will be softened by the increasing demand in the emerging economies of China, India and the Middle East.

Dubai-based Emirates is confident of 15 per cent to 20 per cent growth in business and will carry on with its expansion plans, said airline president Tim Clark.

The carrier expects to receive its first Airbus 380 superjumbo next month and a stream of other aircraft this year.
Said Mr Clark: "Of course, we are concerned, but we have had a great year and we are going to continue our business. We will get through this because the markets are incredibly robust at this time."

SIA chief executive Chew Choon Seng said: "Fortunately for us, fuel is priced in the US dollar, which has weakened against the Singapore dollar. And although this will affect our top-line, only about 15 per cent of our revenue is in US dollars."

Airline heads stressed that the key for airlines, especially those with strong balance sheets, was not to be complacent but to go back to the drawing board and re-look every flight, route and aircraft to maximise efficiency.

Airlines are also optimistic about passenger demand, given that air travel is now a need rather than a want in many parts of the world.

Cathay Pacific chief executive Tony Tyler said: "In many parts of the world, there is still growth, and many people are being pushed to the middle classes and they can now afford to fly. Although flying may be discretionary, it will still be a priority for many."

In the end, it is strong airlines with good balance sheets and lean operations that will keep flying, the experts agreed.
While an airline's operating model does not really matter under the present circumstances, there is some indication that business class-only airlines, for example, and low-cost carriers, which do not have the high yields that come with operating long-haul premium services, could be harder hit.

In the last six months, for example, four business class-only carriers have folded. The latest casualty was British carrier Silverjet, which shut down last week.

This article was first published in The Straits Times on June 4, 2008.