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Airlines prepare to hike rates to balance oil costs

"If oil prices stay at the current levels, hiking domestic air tickets is just a matter of time."

Hanson Chang, Far Eastern public relations manager

Consumers may need to pay more when traveling by air as early as the middle of next month, with local carriers likely to increase rates after seeing tremendous costs incurred by steep oil prices.

"We have received applications from carriers operating international flights to hike fuel surcharges, and the decision will be made on Sept. 15," said a director at the Civil Aeronautics Administration's Air Transport Division who spoke on condition of anonymity. "We set the date because it's past the peak season and puts less pressure on consumers."

Starting at the end of June last year, local carriers imposed a surcharge of US$5 per ticket on flights within Asia, and US$13 per ticket on long-haul flights beyond Asia, when crude oil was about US$40 a barrel.

But the surcharges were not enough to cover the costs, as oil prices have been consistently spiraling, and have now hit US$67.1 per barrel for September delivery in New York last Friday.

"Our profit has been significantly eroded by the fuel costs," said Johnson Sun (孫鴻文), spokesman for China Airlines (華航), Taiwan's largest carrier.

In the past, jet fuel on average accounted for 25 percent of China Airlines' total costs, and now the percentage has jumped to more than 30 percent, Sun said.

For the first seven months of the year, China Airlines reported sales of NT$59.84 billion, a 13 percent jump from the same period last year, but the net income is estimated to drop due to the fuel costs.

China Airlines expects to see revenue reach NT$105.56 billion and pre-tax income of NT$4.4 billion this year under the assumption that average oil prices are US$45 per barrel. Now the goal seems difficult to attain considering the current price levels. In addition, the carrier posted pre-tax income of NT$750 million for the first quarter, only 80 percent of the goal of NT$934 million.

Sun refused to reveal the range of surcharge increase proposed by the carrier, saying the company has taken several measures to stem the loss, including adding more flights to busier routes, enhancing fuel efficiency, and cutting internal costs.

Because of the skyrocketing fuel costs, various carriers have hiked their surcharge by significant amounts. Cathay Pacific Airways, for example, raised its fuel surcharge on long-haul flights to US$43 per sector, and US$11 on short-haul flights.

Nieh Kuo-wei (聶國維), spokesman for EVA Airways Corp (長榮航空), also said the company has tried its best to cut costs and has reported its difficulties to the Civil Aeronautics Administration.

Smaller carriers that mainly operate domestic flights may also bow to the pressure of fuel costs and hike ticket prices, said Hanson Chang (張有朋), senior public relations manager of Far Eastern Air Transport Corp (遠東航空).

The administration in May agreed to adjust the price-hike percentage for domestic routes to as high as 9 percent, while domestic operators have raised the fare by about 5 percent so far, meaning carriers still have 4 percent to hike, Chang said.

"If oil prices stay at the current levels, hiking domestic air tickets is just a matter of time," Chang said.

In addition to passenger rates, both China Airlines and EVA Airways said yesterday that they will raise cargo rates for US and European destinations by 10-15 percent, effective today.

China Airlines shares rose 0.93 percent to NT$16.35, while EVA Airways declined 1.38 percent at NT$14.30 on the Taiwan Stock Exchange yesterday.
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