By Isaac John
DUBAI
– With oil prices soaring to new highs, the Middle Eastern crisis is set to
render a severe blow to the aviation sector, which was on track to make profits
this year.
The
political turmoil in the Middle East has raised the oil prices that are
expected to touch $115- $120 per barrel within the next two weeks if the
turmoil worsens. As the aviation turbine fuel prices account for a
major portion of the operational expenses, the situation would result in
a reversal of fortune for global airlines with more losses in the current year,
Frost & Sullivan, a global growth consulting company, forecasts.
Analysts
said the surging cost of jet fuel, which is most airlines’ single-biggest
expense, will put airlines in a spot.
The
global airline industry lost $16 billion in 2008 and $9.9 billion in 2009. Following
a turnaround, airline industry would gain $15.1 billion in profits in 2010 as
expected by the International Air Transport Association. The IATA expects
full-year 2011 to be tough and profits to soften to the level of $9.1 billion.
“Tougher conditions are likely to stem from rising fuel costs, stable yields,
weak traffic volumes, slower global growth and increased taxation, particularly
in Europe, which are expected to suppress demand for air travel,” it said.
Frost
& Sullivan believes that the Middle Eastern crisis had also restrained the
inflow of tourists into the region, especially in countries like Egypt and
Tunisia. “The economies of Egypt and Tunisia are strongly supported by
tourism and these economies are in grave danger if the tourist inflow does not
get back to normal. Another key threat is the rise of political unrest in the
region which would impact the aerospace sector at all levels.” The
consulting company said the key area that would feel the crisis impact is the
offset sector where the foreign investors would be reluctant to procure from
this region.
“The
continuation of political turmoil would also lead to a dip in the defence
budgets in the region. There is also a risk of civil war in the region which
would lead to the unstable airport infrastructure, airline operators and
maintenance, repair, operations , or MRO, market apart from destabilising the
entire economy of the region.
Libya
produces about 1.6 million barrel of oil, majority of which is exported to
Europe. Saudi Arabia would need to increase its production to cater to the
European needs, failing which the economies in Western countries would be in a
risk because the oil prices would increase. This would risk the stability of
the economy as the oil prices form a part of the inflation, Forst &
Sullivan said.
If
the oil prices continue to rise it will be bad news for aircraft manufacturers,
airline leasers, component manufacturers, airports and the MRO houses, the
consulting frim said.
Goldman
Sachs has warned that Brent crude oil futures may trade between $105 and $110 a
barrel in coming weeks if uncertainty in Libya continues. Prices may
reach a record if unrest spreads to larger producers in the Middle East, such
as Saudi Arabia, he said.
“The
real key is the contagion risk. Then prices could test historical highs,” said
Goldman Sachs.
Brent
jumped as high as $108.18 in electronic trading on the London-based ICE Futures
Europe exchange? on Tuesday. OPEC ministers meeting on the
sidelines of an international conference in Riyadh are unlikely to increase
output even though unrest across the Middle East are driving prices to dizzying
heights.