IATA : Sky-high oil prices could cost $6.1 billion losses to airlines in 2008

A "perfect storm" of soaring fuel costs and slipping demand could cost global airlines $6.1 billion US dollars this year, the International Air Transport Association (IATA) said. Painting a grim outlook for the industry, IATA's director general and chief executive Giovanni Bisignani said he expected to see more airlines go bust as sky-high fuel prices slash profitability. "Already some 25 airlines in our financial systems have gone bust - greater than immediately following 9/11 - and we are bracing for more. Despite some relief in the oil price, we are a fragile industry that is in a crisis." Oil prices are currently trading in the $100-$110 range but Bisignani said it could easily surge again on instability in Russia and the Middle East. He said the reality was that oil prices look to be permanently higher than 5 years ago.

- It is funny to me how some people have been talking about how it is time to buy airline stocks again after the recent decline in oil prices. It is in some ways similar to how the media has been promoting financial stocks when the talk was that the credit crisis was going away. Or how others have been talking about buying the US dollar since USDX had broken upward through the resistance levels of 74, 76 and then 78 and continued to climb, seemingly defying gravity.

In all 3 cases, nothing could be further from the truth. The fundamentals have not changed, and in fact, are getting worse on all fronts. Peak Oil is still not yet cancelled despite the fall from $147.27 - if anything else, OPEC's probable decision to continue running the pumps at full speed will only continue to deplete their reserves and continue bringing the water level in their wells upward. The credit crisis is not only not going away, it is worsening, as evidenced by the emergency plan executed last weekend that saw the US government take control of Fannie and Freddie. Expect more "liquidity injections" into the system. The US dollar has terrible fundamentals still, and this excellent article by James Conrad explains how the USD has been pumped up recently and how this intervention is doomed to fail.

In other words, I continue to stay clear of general stocks including and especially airlines and financials, and I continue to accumulate resources and commodities. So what if crude oil has corrected just about 28% from $147.27? It is still up over 900% from the $10 level back in 1999. A bull market is designed to shake off as many weak hands as it can on the way up. Oil longs, keep your eyes on the goal, and your hands steady.

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