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Airlines Trimmer But Still At Risk

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By GILLIAN WONG, The Associated Press

Published: February 19, 2008

SINGAPORE - Improved efficiency has helped airlines better prepare for a possible global economic slowdown compared with the last major recession, but expensive fuel continues to hurt bottom lines, an airline industry group said Monday.

The airlines "are better prepared because we have a much more efficient system overall," the International Air Transport Association's chief executive, Giovanni Bisignani, said on the sidelines of the Aviation Leadership Summit in Singapore.

"Simplifying businesses brings into the industry $6 billion in savings. We've been able to develop new routes and improve fuel efficiency," Bisignani said.

Since 2001, the industry has seen labor productivity rise 64 percent, while nonfuel unit costs have dropped 16 percent and sales and marketing costs have decreased by 25 percent, according to the association.

Bisignani said, however, that it's still too early to forecast the effect that a U.S. or global slowdown would have on airlines' revenue and warned that tough times are ahead.

"The revenue cycle peaked in 2006 and the negative impact of the credit crunch is still being calculated. Airlines may be out of intensive care, but the industry is still sick," he said in an opening speech. The association expects air traffic growth to slow from 5.9 percent in 2007 to 4 percent this year.

High oil prices are somewhat offsetting the gains made in improving efficiency, Bisignani said.

He said the bill for oil spending this year was likely to be about $150 billion, based on an estimated price of oil at $78 a barrel. Fuel makes up nearly 30 percent of the total operating cost of an airline, he said.

"Just imagine, in 2003, our bill was $44 billion. ... You see how the impact has changed?" he said.

Carriers also are in a more vulnerable position now than during the 2001 recession because of mounting debt, which could see airlines headed toward an economic downturn with little cash to mitigate the fall, he said.

"This is an industry that is making $5 billion this year, as a forecast, but we have $190 billion in debt, so it means we're more vulnerable," he said.

Airlines said they were thinking of ways to cope with a potential slowdown in the world economy that could affect air traffic.

"The probability of a slowdown has gone up a lot since the turn of the calendar year," said Singapore Airlines chief executive Chew Choon Seng.

"The aviation industry tends to reflect the state of the economies around the world, so there will be some effect on demand for air travel," Chew told reporters.

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