The international aviation industry is set for another turbulent year, with some analysts warning that the impact of skyrocketing fuel prices may be worse than the aftermath of the September 11 attacks.

Earlier this year, the International Air Transport Association trade group predicted a total annual profit of $4.5 billion (Dh16.5bn). But as oil prices continued their upward spiral and the global economy weakened, the association revised its view and announced that the industry was facing losses of $2.3bn in 2008.

In the past six months, 24 airlines have fallen into bankruptcy. And in the next 12 months, the industry could face $99bn in extra costs – which could see more airlines failing.

"With fuel prices at record highs the industry faces a crisis and the year ahead has extraordinary challenges," IATA Chairman Samer A Majali told Emirates Business in an exclusive interview.

"Finding even more efficiency gains – not just for airlines, but throughout the industry value chain – is crucial for our survival. It's time that everybody with a stake in the industry worked together to come out of this bad phase.

"Regulators, governments, airports and unions must all come together to save the industry from becoming a victim of not only high oil prices and ballooning cost structures but also taxation and unilateral emission trading schemes."



As the rising fuel prices hit the aviation industry – and there is speculation that oil may hit $200 a barrel – what is your strategy going forward?

The aviation industry is going through a difficult phase. Oil has increased by $53 a barrel from the lows of 2007 and is expected to increase further. At IATA's recent 64th annual meeting and world air transport summit in Istanbul, Turkey, we asked all stakeholders in the industry – particularly the regulators – to assist airlines. Governments, airports and staff – everybody should work together to help airlines get out of this financial crisis. Archaic rules that prevent airlines from restructuring across borders should be eliminated. Governments should not impose multiple and additional taxes. They must overcome their obsession with punitive and unilateral emission trading schemes and start working on real solutions to reduce CO2. A Single European Sky is critical. Equally important is the Agenda for Freedom. To fight the many crises that beset this industry we must liberalise. Airlines need the same commercial freedom that almost all other businesses enjoy to manage risk and grow into truly global enterprises. It's sad but airlines are made a scapegoat for everything. My strategy is to work with all stakeholders to ensure that airlines can be helped in such times.

Can we expect airlines to further reduce their operational costs to keep up with rising costs?

Each airline has its own strategy and [it depends on] the situation they are in. One approach is to pass on the costs to the passenger but that does not happen all the time. Airlines are exploring ways to cut fuel costs. IATA has a green team and this initiative helps to conserve fuel and can save between three to 12 per cent fuel consumption depending on the airline. Besides this, many airlines are targeting passenger growth but this is also a difficult thing to do now as many people are choosing not to fly because of the United States economic slowdown. The aviation industry is going through a bad phase and there is no single strategy that can come to the rescue of all airlines.

A number of airlines have gone belly-up recently. Do you see this trend continuing and do you expect to see more consolidation in the future?

About 24 airlines have gone bankrupt in the past six months and if fuel prices remain at existing levels or increase we could see the number going up. The global airline industry contributes eight to 10 per cent of the world's gross domestic product. It is an essential part of the global economy and everybody has to make an effort to sustain it. Consolidation depends on local and regional rules and regulations. We have heard about the merger of Delta and Northwest airlines in the US but it will go ahead only after the usually tough anti-trust review process and after obtaining approval from the Congress and Senate.

Do you think the future belongs to budget airlines?

Unfortunately budget airlines will be the hardest hit by fuel rise. Fuel as a proportion of their overall cost is higher than other airlines. They have achieved efficiency and cost cutting in other areas and there is nothing that can be done about fuel.

From Qantas and Qatar to British Airways and Northwest, everybody has expressed concerns and serious disappointment about the delays in the delivery of the Boeing 787. Officials have said these delays could result in some of the planes delivered as much as 30 months or more late. What is your view of this?

These delays are unfortunate. These new planes are more efficient when it comes to fuel consumption and maintenance so the sooner we have them the better it will be. However, we have to take into consideration the development cycle and logistics, which are not always under the control of the manufacturer.

Will airline passengers have to pay extra for everything from luggage to meals on board in the future?

The position is different for different airlines. They have to factor in competition, market position and many other things before deciding to go ahead with such measures.

You have taken over as chairman at a critical time. In your view what is the outlook for the aviation industry?

World carriers returned to net profit in 2007 for the first time in seven years. The global airline industry had posted a net profit of $5.6bn last year, the first profit since 2000. So there's hope. The most important thing that we should take note of is that this industry is very resilient. We have faced multiple shocks in the past – whether it was September 11 attacks in the US, economic downturn, geo-political tensions, epidemics – we have survived. Not one year has gone by when the industry has not faced some kind of problem but it has met the demands and aspirations of consumers. Internally, airlines are very efficient and the industry continues to be attractive for investment.

What will the balance sheet of the aviation industry look like for 2008?

We estimate industry-wide losses to be around $2.3bn in 2008.



PROFILE: Samer A Majali, Chairman, IATA

Samer A Majali, a 29-year veteran of the air transport industry, has served as CEO of Royal Jordanian since 2001. He successfully led the airline through one of its most challenging periods as it prepared for a successful privatisation.

Majali takes on the role of IATA Chairman at a difficult time with the airline industry falling into the red as fuel prices skyrocket to unprecedented levels.