Fact Sheet: Fuel

High fuel prices spur industry losses in 2004/2005:

• Oil prices were the principle driver of industry losses in 2004 which totaled $4.2 billion 
• With an average price of US$38/barrel in 2004 the fuel bill grew to US$61 billion
• If oil averages US$47 (barrel/Brent) for 2005, the industry can expect a fuel bill of US$83 billion and a loss of US$6.0 billion
• Over the past 3 years:
  - Industry fuel bill has doubled
  - Price per barrel has shot up 88%
• At US$47/barrel industry fuel costs will rise to 22% of operating expenses in 2005

Price outlook for 2005: 

• Financial market consensus is an average US$47 per barrel price for 2005
• Current average price year to date is US$49/barrel
• Prices to remain around U $50 per barrel with potential to the upside greater than the downside
• Likelihood of falling below US$40 per barrel is remote
• This overshadows very good non-fuel unit cost performance by airlines:
  - Airline non-fuel unit costs down by an average 2-3% a year, in distribution, labour productivity and other cost savings
  - A further 4.5% reduction is forecast for 2005 – a level exceeded before only in 1997

Regional impact:

• US airlines have been more exposed to the rise in oil prices
• 9% fall in the US dollar in 2004 partially offset the 33% rise in dollar oil prices to European and Asia-Pacific airlines
• US airlines, with generally low credit ratings, were unable to hedge significantly and got no cost saving benefit from the fall in the US dollar
• This year the dollar has been falling further 
• Hedging levels will drop from 40% in 2004 to 20% in 2005 as high oil prices have made hedging very expensive
• Reduced hedging will add $3 billion to the fuel bill in 2005 

Continued focus on Fuel Savings:

• IATA Fuel Services reported US$332 million savings in 2004 in services, fees and taxes
• Route and operational efficiencies saved US$1 billion in 2004
• Improvements in fuel efficiency will save some $2 billion in 2005 as airlines carry an additional 6% of traffic on just 4% extra fuel 
• Each 1% improvement in fuel efficiency across the industry lowers industry fuel costs by US$800 million per year
• 2005 priority is to secure US$700 million of industry fuel savings through operational improvements, new routes and route/airport enhancements
  

2005 profitability will again be strongly influenced by oil