Situation in Gulf Worsens Problems Facing Airlines

The world’s airlines face increasing turbulence because of rising fuel costs caused by the Persian Gulf situation, the head of the International Air Transport Assn. said today.

Director General Gunter Eser said in the IATA’s annual report that the financial outlook for airlines, already not very good in the first half of 1990, had been worsened by the crisis.

“Fuel prices have been even more volatile than before and there have been sharp increases in hull insurance costs for operations in the Middle East,” he told airline heads at their two-day annual gathering.

Fuel costs generally range from 10% to 25% of total operating costs, so any movement in the price of fuel has a serious effect on the financial health of airlines.

The price of oil has roughly doubled on world markets since Iraq invaded Kuwait on Aug. 2.

Referring to the Persian Gulf crisis, Eser said: “That is now the biggest cloud in the sky, creating business uncertainty but also actual hardship.”

IATA members agreed in September to raise passenger fares by between 5% and 8% and cargo rates by 7% to offset higher fuel costs.

The 1990 IATA report showed that the Persian Gulf crisis compounded a two-year decline in profitability despite gains in both passenger and cargo transport in 1989. This was because interest charges rose by 27% while airlines competed for increasingly scarce capital to finance their fleets. As a result, net profits fell 80% to $300 million in 1989, the report said.