Business Case for the SunShine CoaSt airport Master Plan

Australian aviation has not felt the impact to the same extent as many nations for two reasons:
• The Australian economy, at least to this point, has not experienced the depth of
recession experienced in other developed countries (we may even avoid a ‘technical’
recession).
• For this reason many airlines have decided Australian routes are the ‘best of the worst’
performing routes (and all routes are performing poorly). For airlines in Asia the
largest falls are in the number of premium passengers and in freight. In the economy
cabins passengers are travelling on heavily discounted fares. The upshot is a dramatic
reduction in airline yields.
3.2.2 Oil Prices
Crude oil prices have been the major concern for airlines over the past couple of years (shown
for the period January 2003 to July 2009 in Figure 3.1). Crude oil prices increased from an
average of USD29 a barrel in 2003 to over USD133 in June and July 2008. Refining margins
for jet fuel were also up substantially over this period, from USD4 to over USD30.
Airlines responded to the developments by adjusting capacity and raising fuel surcharges.
Airlines retired older less fuel efficient aircraft faster than originally planned. This, combined
with slower than anticipated deliveries of new aircraft, slowed overall capacity growth. This
may have saved airlines from even larger economic problems in 2009.
However by December 2008 crude oil prices had fallen to USD40, the lowest price since
December 2004. Jet fuel prices, which averaged USD166.5 per barrel in July 2008, fell to a
four year low of USD52.8 by February 2009. Airlines responded by lowering and/or by
removing fuel surcharges.
Over recent months oil prices have started to edge higher; June 2009 crude oil prices were up
72% on December 2008, to USD68.6, although falling slightly during July to USD64.4.
However the margin has compressed to 12%, limiting the increase in average jet fuel prices.
In July 2009 the average jet fuel price was USD72.5 per barrel, up 37% on February 2009.
Once economic growth resumes, particularly in China, prices could increase further. IATA
reports that the upward trend in jet fuel prices this year is a great concern and is increasingly
squeezing airline cash flows. As a result of the rising prices, combined with on-going revenue
weakness, IATA now forecasts industry net losses remaining high at $9 billion during 2009,
twice the size of the $4.7 billion loss forecasted in March.
TFI assumes that crude oil prices will increase during 2009/10 but not to pre-July 2008
levels. Oil prices are considered to be a ‘neutral’ factor in these forecasts. Sustained growth
of above USD85 for crude oil over the next few years would lead to the reintroduction of fuel
surcharges and to a possible slowing of traffic growth. Attachment 9 provides the support for
this assessment.
10