Air France boss calls for global regulation of 'indecent' oil prices

Chief executive demands an end to the 'market bubble' that contributed to his airline's €245m loss
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The Independent Online

The chief executive of Europe's largest airline has called for a new regulatory framework to drive down soaring fuel prices and reduce volatility due to speculative trading.

Speaking aboard the first commercial Airbus A380 flight from the African continent last week, Air France-KLM boss Pierre-Henri Gourgeon said that he wanted to see increased co-operation to cut the impact of unpredictable oil prices during the downturn.

"It is totally abnormal that two days ago, fuel went up by 5 per cent and a week before it went down by 5 per cent," he said. "It's uncontrollable. This is the fuel for all the economy. How can we have a world where just by trading you create a variation of the fuel price of 10 per cent through the week, without any reason?"

Describing the fuel price situation as "unmanageable", Mr Gourgeon called on authorities to "create coalitions to limit this indecent spiral. It's only a market bubble and it's killing the real economy," he said.

Air France attributed a disastrous third quarter loss of €245m (£215m) in part to an unsuccessful fuel hedging strategy, as well as its ailing cargo business. Oil prices are particularly important to the airline's finances as fuel accounts for around 25 per cent of costs, well in excess of salaries. Paul Butler, an aviation analyst at Macquarie, forecast that Air France will suffer a €400m hit over the next 12 months. "They got burnt but now they hedge over two years rather than four, in line with other European airlines," he said.

However, Mr Butler questioned whether an alliance with other airlines would be powerful enough to result in any significant savings. Management recently warned investors of a possible €500m operating loss for the first three months of 2010, which led to a near 10 per cent slump in its share price.

Mr Gourgeon welcomed the recent announcement from French authorities that the investigation into the Air France flight from Rio de Janeiro to Paris which disappeared while flying over the Atlantic will be reopened in March. "If they can find the wreckage of the aircraft, that's important for us," he said. We can pay for that. It's costly research but we say it's important to understand what is going on."

Boeing's managing director for environmental strategy said in London last week that a major revolution in aviation fuel would come by the end of the year.

Bill Glover said he believed that an eco-friendly petrol, made 50 per cent from biofuels, should get regulatory approval from two key appraisal bodies by December. The biofuel element is made from a green shrub and manufacturers hope that the petrol will one day come entirely from this crop. The aviation industry is looking to reduce its greenhouse gas emissions by half over the next 40 years.

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