Bangkok--28 Mar--Centre for Asia Pacific Aviation
Airlines are facing the double whammy impact of a slowing US economy and rising oil prices.
US crude oil futures spiked above USD68 overnight (its highest level since early Sep-06) on geopolitical concerns tied to Iran, but later settled to around USD64.50. Several carriers, including Air France-KLM and Singapore Airlines/SilkAir, raised their fuel surcharges last week, and others may be compelled to follow soon.
But further evidence of a housing-led slowdown in the US (with new home sales falling for the second consecutive month in Feb-07) clouds this issue for airlines as the market may not accept increases to the price of travel as readily as previously.
Adding to the picture is the rapid erosion of US consumer confidence. The Conference Board issued a gloomy set of figures for Mar-06, with the Consumer Confidence Index falling 4.0 ppts. According to The Conference Board, apprehension about the short-term future has suddenly cast a cloud over consumers' confidence. But despite diminishing expectations, consumers' assessment of present-day conditions remains steady and does not suggest a weakening in economic conditions.
The Centre for Asia Pacific Aviations recent review of Asian cargo markets and reports by express freight operators does suggest a weakening is occurring, and probably has several months to run. However, according to The Conference Board, the recent turmoil in financial markets coupled with the run-up in gasoline prices may have contributed to consumers' heightened sense of uncertainty and concern and the direction of both components over the next few months bears watching to determine whether this decline is just a bump in the road or something more substantial.
"The latter, coupled with high fuel prices, would ensure significant headwinds for the airline sector", said the Centre's Executive Chairman, Peter Harbison.