Crumbs of comfort...

Having suffering the brunt of the 'perfect storm' recently, the aviation industry was due at least a slice of good fortune.
COMMENT, Business Trends


While analysts at some of Wall Street's most respected and storied investment institutions considered their prospects on the job market as a result of what has been termed 'Meltdown Monday', one significant sector saw its share prices rally, somewhat unexpectedly.

Having suffered the brunt of the 'perfect storm' over the course of the last year or so, the aviation industry was due at least a slice of good fortune. As the price of oil plummeted from its mid-July high, US airline executives have suddenly found themselves with a little room to manoeuvre.

Whereas lending conditions will now be stricter for companies looking to invest large sums of capital in their operations, the banking crisis will be unlikely to hit operators who have already been restructuring their businesses in the face of exceptional fuel costs.

In addition, OPEC's decision to cut production by half a million barrels a day - in effect, back to the syndicate's September 2007 targets - was not as severe as some might have suspected, and is a result of the faltering global demand for oil as the credit crunch bites home.

The move is a signal to the markets that OPEC wants to see an eventual floor to oil costs, although it does seem that the organisation will not object, for the time being, to the price drifting a little lower.

However, it will still take some time for the price of jet fuel to drop to the value of the benchmark crudes, but the rallying of some airlines' shares despite the general falls on major stock markets will allow some carriers the breathing space to bolster their cash positions.

Frankly, this is not a cause for celebration during a month that also witnessed some of Boeing's most important employees hit the picket line in a row over pay and employment guarantees, and Italian flag-carrier Alitalia slide closer towards insolvency and a break-up of its assets.

For Middle Eastern airlines, Boeing's travails mean that delayed orders for aircraft may slow even further, especially as the US giant's production lines have now halted completely. Elsewhere, the banking slump will cause concerns for the investment-hungry Indian cargo start-ups, many of whom are rolling back launch dates.

Regional cargo carriers have, in some cases, been forced to put expansion plans on hold as oil prices bit into profits, and they are already well-used to delays in delivery from Airbus and Boeing.

Furthermore, the expected slowdown in business travel that will accrue for the passenger sector as a result of economic reversals will not materialise for the freight sector. And, as their bulging order books show, companies of the ilk of Emirates and Etihad have for some time been planning for a long-term future, a future that a more stable oil price would surely help to shape.

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Ed Attwood is the deputy editor of Air Cargo Middle East & India.

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