Airlines set for losses as Mideast unrest hits

Monday, 28 February 2011 00:01 - - {{hitsCtrl.values.hits}}

(Reuters) - Airlines operating flights to the Middle East and North Africa could face losses this year, as tourism slumps and oil prices surge amid political uncertainty and escalating violence.

Libyan protestors are resisting desperate attempts by Muammar Gaddafi to crush a revolt demanding an end to his 41-year rule. This follows protests in neighbouring Egypt and Tunisia where mass movements toppled entrenched leaders.

“If the unrest continues, it might reach a point where airlines cannot fly into these countries,” said Gunther Matschnigg, senior vice president for safety, operations and infrastructure at International Air Transport Association (IATA).

He said Gulf-based carriers and other European airlines operating into the region will be affected in such a scenario.

Emirates, British Airways BAY.L, Lufthansa and others suspended flights to the capital city Tripoli with immediate effect last week.

European tour operators and airlines cancelled several trips to Cairo last month, as angry protesters took to the streets to oust President Hosni Mubarak, dealing a blow to a tourism industry that provides about one in eight jobs in the country.

“Countries like Egypt and Tunisia are popular among tourists and people in these countries also depend on tourism. Unrest in the Middle East will affect the traffic growth,” said Matschnigg.

Egypt Air said this month that it has offered to lease out 25 of its newest aircrafts as tourists stay away from the country.

Emirates, one of the Arab world’s largest carriers, reduced its flight frequency from 13 flights weekly to and from Cairo to seven weekly. Other airlines are also known to have reduced their flights to Egypt.

IATA’s director general Giovanni Bisignani said on Wednesday that airlines are “very challenged” by oil price rises amid unrest in the Middle East.

The turmoil in Libya, which pumps nearly 2 percent of world oil output, sent Brent crude prices above $108 a barrel to a two and a half year high.

“Assuming the situation continues, the oil prices are expected to touch $115 to $120 per barrel within the next two weeks, which would result in losses for global airlines for the current year,” said John Siddharth, an industry analyst for the South Asia and Middle East at Frost & Sullivan.

IATA’s Matschnigg said rising oil prices may compel the aviation sector to think about fuel surcharges, thereby increasing ticket costs.

“If prices go higher there will be a discussion about surcharges,” said Matschnigg.

“Several airlines have hedged for their fuel needs but not all. It all depends on how long this situation will continue.”