High oil prices are putting the squeeze on airlines worldwide, and passengers are seeing fuel surcharges tacked onto tickets as executives keep a nervous eye on the bottom line.
But low-cost budget air carriers taking off around Asia see little choice but to press ahead. They're pushing on with expansion plans and insist they can still beat their bigger, established rivals on price.
"Our fuel bill is small because we're small," said Sim Kay Wee, chief executive of Singapore-based Valuair, which has two Airbus A320s and flies daily to Hong Kong, Bangkok and Jakarta. "It's not as bad as if you're a big oil drinker, but we're riding the roller coaster, so to speak."
Even though Valuair's fuel bills are rising, it plans to double its fleet with two new jets, offering more services to Hong Kong and new ones to the western Australian city of Perth and Guangzhou, China.
While expensive oil is a particularly sharp blow for airlines, rising demand is helping carriers offset bigger fuel bills by increasing their revenue, said regional aviation consultant Peter Harbison.
Valuair recently had to raise its fuel surcharge on tickets to S$8 (US$4.75) per flight sector, but Sim says he can still keep his tickets about 20 percent to 30 percent cheaper than bigger carriers like Singapore Airlines.
Perhaps the best-known regional budget carrier, AirAsia, has not added on any fuel surcharges and it's moving forward with plans to sell shares on the Bursa Malaysia stock exchange as early as next month.
The Kuala Lumpur-based AirAsia launched services in 2002, modeled after no-frills US carrier Southwest Airlines, which has successfully weathered the ups and downs of the business for decades.
Harbison said the impact of high fuel prices is being felt across the industry, though some larger carriers might be better protected after hedging their fuel costs in the futures market.
Others who didn't hedge are feeling more pain, said Harbison, managing director at the Center for Asia Pacific Aviation in Sydney, Australia.
"Once fuel prices went north of US$40, very few carriers were ready to hedge at that stage," Harbison said. "They thought, `We have to bear some pain for a while and ride this out.'"
Airlines can hedge their fuel costs by agreeing to buy in the future at a specified price. If the actual market value of jet fuel rises, they save money on their purchases, but if it falls, the money they lose on the futures trade is covered by their lower cost for actual fuel.
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