IATA: budget airlines will struggle; easyJet: no we won’t
03.06.08
Budget airlines will be the biggest victims of soaring fuel costs as fares rise across the industry IATA, the global aviation body, said yesterday. However easyJet, Europe's second biggest budget airline, dismissed the claim.
Echoing recent comments by British Airways chief executive, Willie Walsh, Giovanni Bisignani, IATA chief executive, warned passengers that the era of cheap air travel, spurred by the no-frills carrier phenomenon, will be ended by the oil price spike. The fuel bill for the global airline industry could rise by $50bn (£25.5bn) this year and has put businesses in ‘emergency mode’, he said.
Mr Bisignani said low-cost airlines face the greatest shock because their business models rely on cheap fares. He said: ‘When you add $50bn to the bill, somebody has to take care of the cost. Clearly the fare will have to reflect a cost structure that is different. In this picture, the low-cost carrier will be more affected,’ adding that fuel represents 50% of costs for some no-frills carriers, such as Ryanair, while it accounts for 34% of the cost base among IATA members.
However Toby Nicol, Communications Director easyJet, said Mr Bisignani represented ‘vested interests’ because IATA is the global body for traditional network carriers such as BA, Air France-KLM and American Airlines. He added that airlines with the most cash and least debt on their balance sheets, led by Ryanair and easyJet, are more likely to survive the high oil price and weak consumer demand squeeze.
He said rising fuel costs will benefit short-haul operators because the fuel cost passed on to the passenger is much lower. For instance, fuelling a BA return flight to Miami cost around £60,000 per journey when oil was at $80 per barrel. At $135 per barrel, the cost has climbed to £100,000, which equates to an increased fuel cost of around £133 per passenger. In contrast, the cost in fuel of flying from Luton to Alicante and back with easyJet has doubled to around £20 over the same period.
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