BA chief predicts tough times for aviation
6 October 2008
British Airways chief executive Willie Walsh has told an audience of brokers and underwriters at Lloyd’s that the global aviation market will be heavily impacted by the current financial crisis and predicted the failure of more airlines.
Walsh addressed the Insurance Institute of London in the Old Library at Lloyd’s on 1 October and said the aviation market was in trouble prior to the credit crisis.
“I think we are all trying to understand what the current financial crisis will mean for our business but there is no doubt that the global aviation market will be impacted,” he said. “I would like to say that the aviation industry is well placed to meet the challenges but I think you would prefer me to be honest. The global aviation market was in serious problems before the financial crisis.”
Walsh said there had been 30 airlines forced to close this year and added, “There is little doubt we will see more before this year ends”.
He said the aviation market was entering its toughest trading period of the year off the back of a disappointing performance in 2008.
“The second quarter of the year is traditionally the best for the global aviation industry and in 2007 it made a combined profit of $9 billion,” he explained. “This year that figure was below $150 million. It indicates the current issues that face the avation market.”
Fuel costs now account for 35% of BA’s spending compared to 10% four years ago. Walsh said the need for a third runway at Heathrow is acute.
“A third runway is vital to the ability of Heathrow to continue to be our national hub and for the future wealth of the UK,” he explained.
Walsh said the economic crisis had created new risks for the airline.
“We dealt with fuel price risk via hedging but in doing so we have created a new risk in terms of the counterparty risk,” he said. “The current economic environment is creating new financial risks for airlines. But we are not seeing any new physical risks; our problems are financial.”
His comments follow the publication of a report last month from Lloyd’s broker Aon. It found that the airline insurance market has become a much tougher place for airlines in 2008 with rates hardening for the first time in five years.
Commenting on the report, Doug Paterson, Aon Aviation & Aerospace Practice Leader said: “The challenge for the markets is that they are hardening at a point when the aviation industry as a whole faces a number of economic challenges such as high fuel prices and wavering consumer confidence. We expect the final quarter of 2008 to present some interesting dynamics.”
Last updated on 06 Oct 2008
