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European airline stocks slump amid high fuel costs and slowing economic growth

European airline stocks slump amid high fuel costs and slowing economic growth

European airline stocks slumped on Friday as oil pushed above US$130 a barrel, deepening fears that carriers will struggle to hold on to passengers in an ongoing climate of high fuel costs and slowing economic growth.
Analysts and industry executives alike are predicting that the difficult conditions will push more airlines the way of British business-class carrier Silverjet PLC, which grounded its planes last week after a key funding deal fell through.
The high oil price is forcing most carriers to raise fuel surcharges, increasing the cost of tickets even as consumers in many countries are tightening their belts thanks to the fallout of the global credit squeeze.
That combination of factors is expected to impact severely on demand as airlines head into the traditionally strong summer season, prompting budget carriers to both introduce late sales to grab what's left of the market and cut winter services to keep costs down.
"In the absence of a sharp downward correction in the oil price, it looks set to be a bloody battle for all," said Collins Stewart analyst Andrew Fitchie.
That sentiment was reflected in share prices across the industry on Friday, with easyJet PLC dropping 7.7 percent, British Airways PLC losing 8.2 percent, Ryanair Holdings PLC falling 7.4 percent, Air France SA sliding 6 percent and Aer Lingus dipping 3 percent.
The International Air Transport Association, which represents more than 240 airlines around the world, forecast earlier this week that the industry will lose US$2.3 billion this year because of hikes in oil prices.
It was the second time that IATA had lowered its forecast this year and was a big turnaround from the organization's last projection in March of a full-year profit of US$4.5 billion.
The latest forecast uses a consensus oil price of US$106.50 per barrel of crude, up from the US$86 per barrel used in the March forecast.
That's still well below the US$131 a barrel that the benchmark contract for oil _ light, sweet crude for July delivery _ reached on the New York Mercantile Exchange on Friday.
Aer Lingus warned Friday that it will "break even" at best this year. The Irish carrier said it would cut its long-haul winter capacity by 15 percent and suspend its Dublin to Los Angeles route from Nov. 2 to cut costs.
"At a time of unprecedented high fuel prices and uncertain economic conditions, we will continue to focus on actively managing our capacity and reduce our operating costs," it said in a statement prepared for its annual general meeting.
Meanwhile, budget airline easyJet launched its second round of ticket sales in less than two months as it revealed that its passenger numbers rose 15.9 percent in May compared with a year ago.
The higher passenger numbers, however, reflect the expansion of easyJet's route network and the acquisition of GB Airways earlier this year. The load factor, which measures how full the planes are, slipped to 84 percent from 83.2 percent for the 12 months through May.
Rival Ryanair also launched a flight sale this week as chief executive Michael O'Leary said the airline expected only to break even in fiscal 2009 if the cost of fuel doesn't fall well below its current "irrational" prices.
The airline, which in contrast to most other carriers has not hedged against rising crude oil prices, also warned that it would likely raise fares by around 5 percent this year _ after cutting them by around 1 percent last year _ and will ground 20 aircraft over the winter.
Ryanair has sought to differentiate itself by repeatedly refusing to impose a fuel surcharge on passengers, a measure that O'Leary maintains is a "scam to take more money out of the traveling public" that will push customers in his direction.
"Consumers will become more price-sensitive, I think it is happening already," he said this week.
Some analysts argue low-cost carriers may be the best placed to ride out the storm, with business-class airlines the first to succumb. Silverjet's demise last week followed the collapse of U.S. peers MAXjet Airways Inc. and EOS, which also started business-only services from London to New York in 2006.
British Airways, which has imposed a string of increases in its fuel surcharges this year, acknowledged that economic pressures are likely to hit demand for flights as consumers weigh the cost of a foreign vacation.
"We have not seen a significant impact on volume so far, but clearly the pressure on people's budget is greater today than a year ago," BA head of investor relations George Stinnes said as the carrier reported that May traffic was down 0.7 percent year-on-year.
Ryanair is planning on being one of the last carriers standing, vowing to "grow by taking market share from competitors and expanding in markets where competitors either withdraw capacity or go bust."


Updated : 2020-12-02 12:13 GMT+08:00