Soaring oil prices fuel industry fears

May 14 2008 by Bill Gleeson and Alistair Houghton, Liverpool Daily Post

Predictions of £6 a gallon for petrol will hit some businesses very hard. Bill Gleeson and Alistair Houghton report

THE price of a barrel of crude oil has doubled since the start of 2007. The price rise has been driven by strong demand from China and India, something that is unlikely to slow any time soon.

An increasing number of economists are predicting the oil price could rise beyond its current $124-a-barrel to reach $150 to $200. At $150, prices at the petrol pump would reach a painful £6 a gallon.

Prices are beginning to hurt businesses, too, particularly those in the transport sector, including hauliers, bus companies, airlines and taxi drivers.

One of Liverpool John Lennon Airport’s most popular air routes fell victim to soaring fuel prices last week and the whole aviation sector has started to feel the pinch.

Euromanx flew from JLA to the Isle of Man five- times-a-day, a service that started operating in August, 2002. When it stopped trading at the end of last week, Euromanx blamed increasing fuel prices and low passenger numbers.

In a statement, tThe firm said: "Over the last six months, a number of factors, including rising fuel prices and reduced passenger numbers, have proved to be insurmount- able obstacles to the airline being able to continue to operate."

The statement was in stark contrast to the com- pany’s announcement in February that it had enjoyed a record start to a year with a "phenomenal number" of bookings after it slashed its fares to Liverpool, Manchester and Belfast to just £19 one way.

Just days earlier, Easyjet chief executive Andy Harrison predicted that sky-high fuel prices would send some smaller airlines to the wall.

He insisted his company, which is JLA’s second biggest carrier, would be able to weather the storm, but admitted rocketing fuel costs were eating into revenues.

Also last week, Easyjet reported underlying pre-tax losses of £41.4m for the six months to March 31. The airline traditionally makes a loss in its first half but the latest figure was double that of 2007.

Mr Harrison added: "Oil remains the biggest challenge and uncertain- ty. The price of jet fuel has risen 35% over the last three months, and is now 80% higher than last year. No- body knows how much of this is driven by short-term financial spec- ulation and how much is a longer term increase. What is certain is that, if these fuel increases are maintained, many of our weaker competitors will disappear or downsize."

JLA’s biggest carrier, which oper- ates more than 40 routes, is Ryanair, the Irish budget airline. It remains bullish about its own future pros- pects and regularly takes potshots at full-service rivals such as British Airways and Aer Lingus for their levying of fuel surcharges on passengers.

Ryanair has already warned its profits for the coming year could be halved if the price of fuel doesn’t come down. It has pledged no fuel surcharges on ticket prices, but both it and Easyjet are maximising reven- ues from other sources. For check- ing in a bag, Easyjet now charges £10, while Ryanair has recently raised its charge to £16.

In-flight refreshments are also a valuable source of revenue, for both carriers as are the commissions they earn from car hire and hotel bookings made through their websites. The higher fuel price is just one of a number of problems British Airways is having to grapple with. The disastrous launch of Heathrow’s Terminal 5 coupled with lower passenger num- bers are just adding to their woes.

Analysts say that if oil stays above $120 a barrel much longer then BA’s annual profits for next year could be wiped out. The firm reports its latest figures this Friday.

ANDREW PALMER, managing director of St Helens and Widnes transport business Suttons Group, admits he has had sleepless nights about the soaring cost of fuel.

He said: "In the month of March, and that was before the recent esca- lation, we saw our fuel bill go up by £50,000. Over the last 12 months, the price we pay for fuel has gone up by something like 27%. If you look at how fuel costs in our UK road tanker operation, it represents about 25% of our local costs.