X-Message-Number: 24534 From: "Mark Plus" <> Subject: Oil and overseas cryonicists: Manage your risk, not your terror Date: Thu, 19 Aug 2004 08:55:14 -0700 Refer to my Cryonet post dated May 4, 2004 to supply context for the following news story [Mark Plus]: Warning for overseas cryonicists http://www.cryonet.org/cgi-bin/dsp.cgi?msg=24043 http://news.airwise.com/stories/2004/08/1092856235.html Thursday August 19, 2004 Airlines Under Pressure From Soaring Fuel Price August 18, 2004 As Air France-KLM and Israel's El Al joined rivals on Wednesday in raising ticket prices to offset soaring jet fuel costs, a leading bank questioned how effective the surcharges would be in protecting profits. Citigroup Smith Barney lowered its earnings forecasts for all of the European airlines it covers and slashed its target price and stock recommendation on Air France, citing new assumptions for an average Brent crude oil price of USD$40 a barrel for the rest of 2004 and USD$37 next year. As a result, the bank lowered its forecasts for 2004 operating profit and net profit at European airlines by 30 percent and 60 percent, respectively. "Weaker airlines will get weaker," wrote Citigroup analyst Andrew Light. "At the same time, capacity plans are likely to be scaled back by stronger airlines and older aircraft are likely to be grounded." Air France said it was raising its ticket prices by up to 12 euros per flight leg, while the company's Dutch subsidiary KLM said it would impose a fuel surcharge of an average 3 euros per coupon for all fares as of September 1. El Al announced it would push up fares by 5 percent from September, and by another 7 percent in November. Germany's Lufthansa, British Airways and other airlines across the globe have taken similar steps. Citigroup analyst Light said the moves would help European airlines with a high proportion of long-haul, cargo and premium traffic, notably British Airways and Lufthansa. But he predicted that overcapacity in the leisure segment and on short-haul routes meant that airlines would have trouble generating additional revenue on routes within Europe. OIL PRICE AT NEW PEAK Oil prices surged to a fresh peak of USD$47 a barrel on Wednesday after a new threat by rebel militia against Iraqi oil facilities. US light crude rose 26 cents to USD$47.01 a barrel after a 93 cent jump on Tuesday. London Brent was up 15 cents to USD$43.14 a barrel. Jet fuel is the second-biggest cost for airlines after labor and accounts for 10 to 20 percent of operating expenses. Worries about the impact of high oil prices have weighed on airline stocks this year. While leading network carriers have responded with a series of surcharges, discount airlines like Ryanair and easyJet have stubbornly resisted raising ticket prices, partly due to cut-throat competition in that segment resulting from a wave of new entrants into the market. Back in June, Ryanair warned of a "bloodbath" during the winter season, which only the "lowest cost" airlines would survive. Citigroup suggested that the shake-out could go beyond the low-cost sector, with high fuel prices threatening weaker mainstream carriers like Alitalia and Swiss, whose new Chief Executive said on Tuesday he was taking a hard look at all of the carrier's routes. Air France said an increase of 2 euros per leg on domestic flights and 3 euros on medium-haul European and North African flights would apply to all tickets issued as of August 24. On long-haul routes, where fuel accounts for a larger expense item, the carrier is introducing a surcharge of 12 euros per flight, with the exception of flights to and from French overseas territories, which include Martinique, Guadeloupe and the Reunion Islands, where it will amount to 10 euros. The airline said the surcharge would be dropped once Brent crude oil prices return to below USD$35 a barrel for over 30 consecutive days. Like other airlines Air France takes out hedges to protect itself against higher fuel prices, but as prices rise hedges are locked in at less attractive rates and profits are hit. In May, the airline said it had hedged 72 percent of its fuel needs for the current year at an average rate of USD$25 per barrel. At the time it reiterated its goal for a significant improvement in operating profit in its 2004/5 fiscal year, but said that forecast could be compromised if the price of Brent exceeded USD$33 per barrel on average for the year. (Reuters) _________________________________________________________________ Don t just search. Find. Check out the new MSN Search! http://search.msn.click-url.com/go/onm00200636ave/direct/01/ Rate This Message: http://www.cryonet.org/cgi-bin/rate.cgi?msg=24534