MercoPress. South Atlantic News Agency

Surging oil prices force air industry to raise fares

Anticipating huge losses because of soaring fuel prices Latinamerican and United States airlines have began raising fares in their regional flights.

Lan Chile, Avianca and Taca have also increased international fares and in the US on average air tickets are costing an additional 90 US dollars.

The International Air Transport Association, IATA, estimates air companies losses could reach 7,4 billion US dollars in 2005, while the airlines association in United States is estimating losses of ten billion US dollars at current fuel prices.

Next week a delegation of US airlines will be visiting Congress to request a temporary suspension of the air fuel tax which could represent a 600 million US dollars savings in the last quarter of this year.

IATA's CEO Giovanni Bisignani said the 7,4 billion is 1,4 billion above the original estimate and is a direct consequence of the latest escalation of fuel prices because of hurricane Katrina.

IATA which represents 265 air companies in the world and 94% of international traffic added the estimate was based on an average barrel price or 57 US dollars for the whole of 2005, while the May estimate was calculated with an average barrel of 47 US dollars.

"Once again the increase in oil prices is impeding the industry a return to profitability", emphasized Mr. Bisignani during a presentation in Washington DC.

For each US dollar increase in the price of crude, air transport costs globally surge an estimated one billion US dollars, thus "cost reductions and increase in productivity have never been so vital for the industry".

Meantime in Brazil Folha de Sao Paulo published a report based on judicial sources indicating that Brazilian flag carrier Varig will fire 13% of its staff and split the company in two. Varig has accumulated losses of 3,3 billion US dollars and in 2004 lost another 270 million US dollars.

Apparently one of the companies will absorb the whole debt while the other will be streamlined and auctioned thus opening the possibility of ending 2005 balanced.

Next September 24 Varig creditors will meet to decide on the proposal.