Rocketing fuel prices cripple Aeroflot profits

Russia’s biggest air carrier Aeroflot has warned that their profits for 2008 will be down by as much as 30% on their forecasted results. The company blames record-high fuel prices.

Russia’s flagship carrier made a $US 357 million net profit under International Financial Reporting Standards in the first 9 months of 2007. In December it predicted profits would be slightly lower this year.

But after oil prices topped a record $139 a barrel on Monday, its biggest private shareholder revealed the profits collapse could be more like 30%.

“I hate to say it but we might not see about 30% of the profit we expected to see by the end of the year,” confessed deputy CEO of the Russian National Reserve Corporation Leonid Dushatin.

The Sheremetyevo-based firm is in takeover talks with a number of European airlines suffering even bigger financial problems. The high fuel costs should reduce the asking prices.

Austrian Airlines called for a “strategic partner” last week after the costs of $US 200 million in extra fuel pushed it into the red.

Aeroflot is also the favourite to buy Serbian Airways JAT, where bids for a 51% stake at a starting price of $US 230 million close on July 15th.

Aeroflot’s CEO, Valery Okulov, has revealed how much the oil price jump was costing his own company, and believes that burden should make his takeover targets revise their asking price down.

“Our fuel budget this year is up by $US 110 million,” he said. “We keep revising our business model for JAT and others, because fuel prices are seriously pushing their market value down.”
Airline experts mostly agree that fuel prices will start falling at some point, but have stopped trying to predict when.