New US regulations could result in oil shortage
The air cargo industry has been warned it faces serious challenges because of the rising costs of oil, despite increasing industry optimism.
Frost and Sullivan’s Commercial Aviation Analyst, Max Sukkhasantikul, said that new US regulations could spark an increase in the cost of oil, which would have implications for the air industry.
He said: “There are many challenges still facing the industry, mainly the future of offshore drilling. “Should the Obama administration tighten drilling regulations, there may be an oil shortage between 2016 and 2018, driving fuel costs above US$100 a barrel.
“With fuel costs representing roughly 40% of an airline’s cost base, we can expect the same detrimental impacts as seen in 2007 and 2008.” Efforts to cut costs in response to the rising cost of fuel could have further impacts, he added.
“As airlines attempt to control non-fuel related costs and increase their revenue potential, they face resistance from labour unions, especially of legacy airlines like British Airways, Lufthansa and American Airlines.
He predicted that the fight to cut costs could also lead to more airlines joining alliances, which would create marketing and revenue synergies, to save cash. “The future of the airline industry will definitely include more consolidation,” predicted Sukkhasantikul. “It is the only way airlines can minimise cost and enhance revenue, given the conditions in which the industry operates.
“Acquisition strategies, such as Lufthansa’s, whose present portfolio includes Austrian, BMI, jetBlue and Swiss, together with more partnerships and joint-ventures in certain markets, such as the Delta- AirFrance-KLM transatlantic jv, will be key to cost reduction and revenue enhancement.”
He said a loosening of regulation and the introduction of bilateral agreements and open skies policies could also help the industry reduce costs. But Sukkhasantikul felt progress would be slow and mainly constrained to North America and Europe.
And he warned airlines not to assume that alternative fuels could provide the answer to rising fuel costs and environmental concerns.
He said: “Alternative fuels may not be commercially viable for the airline industry for another 10 years, due to extensive regulatory approval requirements.”
Sukkhasantikul made his remarks after the International Air Transport Association (Iata) announced it expected airlines to make profits of US$2.5 billion this year, more than $5 billion more than originally estimated.
Source: Damian Brett, IFW News, 09 June 2010