SINGAPORE: Global airlines are expected to post record profits of almost $40 billion this year, the head of industry body IATA said, but he warned the sector faced threats from terrorism, a sharp rise in oil prices and protectionism.
Alexandre de Juniac, who took t
he reins at the International Air Transport Association on September 1, also called on Southeast Asian nations to invest in infrastructure to cope with surging demand for air travel in the fast-growing region.
The former Air France-KLM CEO told the group’s symposium in Singapore that collective net profit for the airline industry worldwide would hit $39.4 billion, up from $35.3 billion in 2015.
Speaking at his first international keynote address since taking over from Tony Tyler, de Juniac said carriers had benefited from a sharp fall in the price of oil — fuel costs are their biggest single expense — and a resilient travel market despite slow global economic growth.
IATA data shows that the fuel bill for airlines worldwide is expected to fall to $127 billion this year, down 44 percent from 2014 when oil prices peaked at more than $100 a barrel.
It will be the first time since 2004 that fuel will represent less than 20 percent of airlines’ total operating cost, IATA said.
Oil prices have tumbled for the past two years and hit a near 13-year low below $30 a barrel in February owing to a global supply glut and overproduction.
But he sounded a note of caution for the future.
“I am not here to predict an end to the good times, but it would be unrealistic to expect them to last forever,” de Juniac warned.
“What if oil prices suddenly rise as fast as they fell? What if terrorist activity spreads further and intensifies? What would happen if a major economy had a hard landing? Could the current protectionist rhetoric dent demand for global connectivity?“
The IATA chief also urged Southeast Asian governments to invest in airports and air traffic control systems to keep pace with the rapid increase in passenger numbers, driven by low-cost carriers.
While Asian economic growth is slowing, demand for travel has mushroomed as an booming middle class look to travel further afield.
“We are concerned that the gap is widening between the growth in passengers and the capacity of the existing infrastructure,” de Juniac told reporters after his speech.
Leading Asia-wide growth is China, which airplane maker Boeing recently said will become the world’s first trillion-dollar aviation market within 20 years.
The world’s most populous country is expected to add more than 6,800 new aircraft to its commercial fleet worth $1.03 trillion by 2035, it said in its annual China Current Market Outlook.
Airlines to post record $40bn profit in 2016: IATA
Airlines to post record $40bn profit in 2016: IATA
G7 countries to release oil reserves as IEA agrees to largest ever market intervention
- IEA recommends release of 400 million barrels
RIYADH: Germany, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
In a statement, IEA Executive Director Fatih Birol said the flow of oil, gas and other commodities through the Strait of Hormuz have all but stopped, leading global energy supply to fall by around 20 percent.
Ahead of the confirmation of the move — a larger intervention than the 182.7 million barrels that were released in 2022 by in response to Russia’s invasion of Ukraine — several countries began setting out plans to bring their reserves into play as countries grapple with soaring crude prices amid the US-Israeli war with Iran.
Birol said: “I can now announce that IEA countries have decided to launch the largest ever release of emergency oil stocks in our agency's history.
“IEA countries will be making 400 million barrels of oil available to the market to offset the supply lost through the effective closure of the strait.
“This is a major action aiming to alleviate the immediate impacts of the disruption in markets.”
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday her government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The US has not confirmed it would do so, but its Interior Secretary Doug Burgum told Fox News on Wednesday that “these are the kinds of moments that these reserves are used for.”
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Germany’s Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
South Korea will release 22.46 million barrels of oil, which represents 5.6 percent of the total IEA ask, the country's industry ministry said.
“The government will consult with the IEA secretariat on details, such as the timing and amount, from the perspective of national interests in accordance with domestic conditions,” the ministry said in a statement.
The ministry said it would continue to coordinate closely with major countries in responding to high oil prices to minimise any domestic impact.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
Following a meeting with the IEA on Wednesday, G7 energy ministers said: “In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves.”
All IEA member countries are required to keep 90 days’ worth of their nation’s oil use in reserve in case of global disruption.
