Paris Airlines despite cheaper oil

Airlines are still in for financial turbulence despite a recent fall in oil prices, with many at risk of posting major losses as the cost of their top input remains historically high. "If fuel prices remain at a reasonably low and stable level, of course it'll be favourable to operations of the company," Wang Jian, board secretary of China Eastern Airlines, told AFP. But "despite the recent reduction in oil price, it remains at historically high levels and a significant challenge to the business," said Cathay Pacific finance director Martin Murray. It "relieves the pressure a bit", acknowledged Air France-KLM's Philippe Calavia, finance director at Air France-KLM. But he noted the Franco-Dutch group has based its financial plans on oil at an average of $98 (Dh360) a barrel this year. Oil prices are "still above our budget", he said. The price of Brent North Sea crude for June was at $106.91 a barrel in late London afternoon trade, way off the $128.40 it hit on March 1 and the record $147.50 it set in July 2008. Profits plummet Airlines in Asia and Europe have been struggling with the high price of fuel, the first or second largest cost in their budgets. Singapore Airlines saw its full-year profit plunge 69 per cent year-on-year to $268 million due to high oil prices and global economic uncertainty. Similarly Hong Kong-based Cathay Pacific saw its 2011 net profit slump 61 per cent to $708 million and recently announced a raft of cost-cutting measures in response to high fuel prices. A spokesman for Australia's biggest airline Qantas, which has raised fares in recent months to partially offset higher fuel costs, said: "Our fuel bill this year is going be significantly higher than last year, so the outlook is still very challenging as far as we are concerned." Jet fuel is Qantas' biggest operational cost and in February the carrier said it had hedged 86 per cent of its remaining fuel requirement for the financial year at a worst-case price of $121 per barrel. Operational cost "The main risk today is to rush to take advantage of current prices, which are still very high if falling, and finding yourself exposed to a loss on your hedges if prices continue to fall," said Air France-KLM's Calavia. The airline which is looking at a fuel bill some €1.1 billion (Dh5.05 billion) heavier than the €6.4 billion it spent last year, has hedged around 60 per cent of its second-largest operational cost after wages. German airline Lufthansa has hedged 76 per cent of its fuel needs, and forecasts it will spend €7.5 billion this year compared to €6.3 billion last year. Chris Goater, spokesman of industry group IATA, said: "Our central forecast in March suggested that if oil averaged $115, then as a whole the industry would still make a small profit of $3 billion. But if oil were to spike to an average of $135, then we would see an industry loss of $5.3 billion." For European airlines, the slide in the euro has been eroding much of the gains in the drop of dollar-priced oil.