The airline industry is headed for tough times because of the global financial crisis and higher crude oil prices which could return to $120 a barrel over the next year, officials and experts said Monday.
Malaysia Airlines Chief Executive Idris Jala told an international aviation forum here that speculation in the oil futures market drove prices to its peak of $147 a barrel in July. It fell to a 13-month low of $77.70 on Friday as the global financial meltdown dried up liquidity, but on Monday, crude rose again to $80 a barrel.
Idris predicted oil prices will continue to rise over the next 12 months and trading will range between $80 and $120 a barrel.
He said Malaysia Airline's financial position is "still very fragile" despite being profitable in the first half this year. It has indefinitely delayed its plan to purchase more than 50 wide-body aircraft, given the market turmoil.
"If we just continue to do business as usual, hard as we play the game, it is untenable in a world where oil prices are staying at $100 a barrel," he said.
Other experts also say $100-120 a barrel is too expensive for airlines to operate profitably. Aviation fuel, which accounts for about half the operating expenses of a flight, is more expensive than crude.
Vijay Poonosamy, Etihad Airways' vice president of international affairs, said there is still upward pressure on oil prices with OPEC likely to adjust supply to boost prices.
"An average price of $100 a barrel with spikes up to $125 would be my estimate," he told the forum.
Etihad, the state carrier of the United Arab Emirates, hasn't felt the brunt of high fuel prices, thanks to the efficiency of its fleet of new aircraft, cost management and hedging policies, he said.
The five-year-old airline, which in July ordered 100 new planes worth $20 billion at list prices, is still on track to break even by 2010, he said. It has only 43 planes now, but aims to grow its fleet to 150 by 2020, he added.
Justin Symonds, global head of transportation at ABN AMRO, said he expects crude oil prices to shoot up to $107 a barrel by the middle of next year.
Symonds and Idris said high oil prices will provide momentum for consolidation in the airline industry and help create better capitalized and stronger companies.
But the industry's biggest concern is the fall in travel because of the financial crisis, which is forcing companies as well as individuals to tighten belts and forgo unnecessary trips.
However, Andrew Herdman, director-general of the Association of Asia-Pacific Airlines, said he expects travel to improve over the next five to 10 years.
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