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Group Predicts Another Bad Year for Airline Industry

STEVE INSKEEP, host:

A group representing the airline industry says losses will be higher than expected this year, largely because of high oil prices. The biggest losses are being felt by carriers in the United States, as NPR's Jim Zarroli reports.

JIM ZARROLI reporting:

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The world's airlines are set to lose about $3 billion this year, according to the International Air Transport Association. That's more than the Association projected earlier, but still a bit less than the industry lost last year.

Giovanni Bisignani, the Association's Chief Executive, said the industry expects fuel bills of $112 billion this year, which is $21 billion more than last year.

Mr. GIOVANNI BISIGNANI (Director General and CEO, International Air Transport Association): Oil is a white God. Prices are racing ahead of efficiency gains and robbing our profitability.

ZARROLI: Bisignani spoke yesterday at a conference in Paris. Despite the higher oil prices, Bisignani said there was light at the end of the tunnel. He said revenue is up 10 percent over last year, and he said airlines have done a good job cutting costs.

For instance, he says, almost half of all seats are now sold using electronic tickets, which are cheaper than the old-style paper tickets. In addition, aviation analysts say airlines have cut back on less profitable routes and are carrying more paying passengers on each flight.

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But that hasn't been enough to offset the steep losses from higher fuel prices, especially in the United States.

Mr. RICHARD ABOULAFIA (Vice President of Analysis, the Teal Group): The U.S. is effectively the dark hole of airline profitability. Everyone else is doing just fine.

ZARROLI: Industry analyst Richard Aboulafia, of the Teal Group, says the demise of foreign carriers, like Sabina and Swiss Air, has left fewer airlines in overseas markets, even with the rise of discount competitors. And with less competition, foreign airlines have been able to pass on higher fuel costs to customers.

Aboulafia says many overseas airlines now tack a fuel surcharge onto the cost of trips, and he says customers in those markets have had little choice but to pay.

In the United States, Aboulafia says that can't happen.

Mr. ABOULAFIA: There's still systematic overcapacity, too many legacy hub and spoke carriers in the U.S., and that suppresses everybody's pricing power -their ability to pass on the higher cost of fuel to the consumer.

ZARROLI: Aboulafia says compared to foreign carriers, U.S. airlines are also more dependent on domestic flights, which tend to be less profitable than overseas trips.

The inability of U.S. airlines to raise prices has benefited consumers, but it's made it much harder for companies in the United States to make a profit compared to their competitors in Asia and Europe.

Jim Zarroli, NPR News, New York.

INSKEEP: Still flying, it's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Transcript provided by NPR, Copyright NPR.

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