BELOW DECK - Asian airlines look strong enough to ride out looming fuel crisis
Thttp://biz.scmp.com/biztrans/ZZZMMTLYLBD.html uesday, February 4, 2003 JOSEPH LO
For the second time in a little more than a year, the threat of a major war in the oil-rich Middle East hangs over the world with the potential to again derail the already ailing global airline industry.
Using history as a yardstick, that should mean a spike in oil prices is imminent. And, for airlines already trying to emerge from two years of global recession exacerbated by the costs of dealing with consumer fears over terrorism, an oil shock could spell further trouble.
This is scary stuff for an industry that has lost a combined US$31 billion throughout the world in the past two years. Put into perspective, that sum represents more than the total profit all International Air Transport Association (Iata) member airlines have earned since 1945.
Already, United States airlines have begun lobbying for government aid in case a war against Iraq should drag on, or evolve into a wider regional conflict throughout the Middle East.
Last week, the Air Transport Association, a coalition of the major US carriers (excluding major low-cost airlines), announced the results of a study which predicted jet fuel prices would jump by US$1 a barrel as a result of a prolonged conflict with Iraq.
At the same time, the association said international air traffic would drop by 10 per cent against the same period last year, a comparison made worse by the fact that air traffic last year was already in no great shape.
Traffic on transatlantic routes, which account for the bulk of revenue for many association airlines, would fall by 20 per cent, it said.
Yet its fears have to be looked at with a cynic's eye, especially from the vantage point of Asia.
The losses it and Iata cite do not include the US and European low-cost carriers, the strongest of which have never been stronger. Nor are they representative of the major Asian and Chinese carriers, which have recovered strongly from the past two years' global travails.
Cathay Pacific Airways, Singapore Airlines (SIA), Korean Airlines, and other Asian majors have all unveiled strong traffic figures for last year, pointing to a tremendously profitable financial year. And so far, while oil prices have edged higher since before Christmas, they have not spiked sharply.
Last week, the spot price for jet fuel in Singapore, Asia's biggest oil market, was a little more than US$35 a barrel, slightly above last year's high achieved in late autumn.
And jet fuel, while trading far above the average of the past decade, is still far from the US$45 plateau reached in late-2000, or during the Gulf War in 1991.
Investors, too, seem to be maintaining their cool. Shares in both SIA and Cathay are trading comfortably in the middle range of their cyclical bands.
Share prices for both airlines are well above their post-September 11, 2001, levels, as well as comfortably above their Gulf War depths, but below the historic highs they hit just before the slide began two years ago.
Meanwhile, there is no consensus amongst oil traders that war in Iraq will undermine global energy supplies any more so than political instability has in Venezuela, the world's fifth-largest oil exporting nation.
The hope is for a repeat of the events post-September 11, when oil prices spiked about the US$35 mark before quickly falling back to more sane levels near US$20 a barrel within weeks.
Another compelling reason for the lack of fear is the changing traffic paradigm for Asian carriers.
Travel within Asia has emerged as the strongest avenue of recovery since the bottom fell out of the global air travel market after the September 11 attacks in the US.
Even the terrorist attacks in Bali last year did little to quench the growing Asian appetite for travel, particularly outbound traffic from the mainland and South Korea.
And so, unless the US war on Iraq deepens into a lengthy conflict, let us look forward to another good year for Asia's airlines.
Kung hei fat choy.