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Singapore/Paris: Airlines around the world braced for slower growth, tighter earnings and deeper cost cutting yesterday as oil prices surged and the biggest carrier by revenue, Air France KLM, warned on profits.
Oil's spike to a record $135 a barrel knocked airline shares worldwide.
Air France KLM's chief executive, Jean-Cyril Spin-etta, warned the airline would have to expect a 1.1 billion euro ($1.73 billion, Dh6.35 billion) rise in fuel costs, squeezing profits this year and forcing it to find 150 million euros in savings.
It now expects an operating profit "in the region of one billion euros", Spinetta said, which would mean a fall of 30 per cent from the year which ended in March. "The current year is set to be challenging, with the oil price and the global economy creating significant uncertainty," Spinetta said.
Oil prices have surged 170 per cent since the start of 2007 and airlines have been toppled, including US-based transatlantic all-business carrier Eos and budget airline Aloha Airlines.
Air France shares were off 10 per cent at 16.8 euros and German rival Luft-hansa was down 3.5 per cent at 15.6 euros as of 1200 GMT. In Asia, Japan Airlines (JAL), fell back 2.1 per cent to 240 yen and Singapore Airlines lost 1.6 per cent to S$15.80 .
Fares rise
Australia's Qantas Airways put up international fares by four per cent and domestic ones by about three per cent in its second such move in a month.
JAL, Asia's biggest carrier by sales, said it too needed to act. "We try to absorb it ourselves but it's beyond our ability to absorb all of it and we need to transfer [some] to our customers," chief executive Haruka Nishimatsu told Reuters in Singapore.
The cost of jet fuel traded in Singapore has risen by more than half this year and analysts expect more cost cutting, particularly among US carriers as an economic slowdown puts off travellers.
"It is going to actually send some [smaller] airlines into bankruptcy," said Nick van den Brul, analyst at Exane BNP. "The best position for an airline is to have a good hedge already in place - a euro exposure to the dollar and also the ability to cut costs."
Even for carriers with fuel hedges providing a buffer, there are other challenges as the economic uncertainty in the US and elsewhere threatens growth plans.
Some carriers are also the subject of sweeping EU and US investigations into allegations of price-fixing in air cargo which pose cost risks, as seen in Air France KLM taking a 530 million euro pre-tax provision on Thursday.
There is pain too as delays in new, more fuel-efficient planes put expansion plans and urgently needed cost savings on hold.
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