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Fri, Jun 04, 2004 - Page 12 News List

Fuel price hike will hit airline passengers: analysts

CRUDE CRISIS With jet fuel prices up 50 percent from last year, many major Asian carriers have either imposed surcharges, or are considering them


Asia's major airlines are in no imminent danger of flying into the red despite the oil-driven escalation in fuel expenses but profits may be hit and passengers will pay more, analysts say.

Any jump in jet fuel automatically threatens the bottom line, but the improving global economic environment and a rebound in passenger travel are helping to provide a sufficient buffer, they said.

Additionally, most of the airlines hedge against rises in oil prices, which should give them a further cushion from the spike in fuel expenses while surcharges should also ease the pain.

Already many of the region's major carriers, including Singapore Airlines (SIA), Australia's Qantas, Malaysia Airlines and Indonesia's Garuda, have imposed surcharges, while Japan Airlines System is planning to introduce one.

"Where jet fuel prices are now, airlines are not in danger of losing money yet. The main worry is that airlines will make less money," said Vincent Ng, aviation analyst at Standard and Poor's Asian Equity Research.

Spot jet fuel prices are trading at around US$44 a barrel, up more than 50 percent from a year ago on the back of record crude oil prices.

According to Ng, jet fuel prices will have to rise above US$60 and stay at that level for at least a year to drag carriers such as SIA and Hong Kong's Cathay Pacific into the red.

Regional aviation analyst Tim-othy Ross, with Swiss bank UBS, is equally confident the airlines are in a sound position to absorb the impact of higher fuel costs.

"I believe in 2004 we will see the meaningful resumption of revenue growth which has been absent in the last three years ... that ought to mitigate the impact of [the rise in] jet fuel prices," the Hong Kong-based analyst said.

"A combination of jet fuel surcharges ... increased jet efficiency ... and hedges in place will go a long way in offsetting the impact," Ross said.

The International Air Transport Association, however, is more pessimistic with director-general Giovanni Bisignani last week warn-ing airlines were in danger of suffering losses.

"The problem now is on the cost side. Instead of flying high, we could be left swimming in red ink," Bisignani said, adding fuel accounted for about 16 percent of an airline's operating costs.

Major airlines have expressed similar concerns to justify their recent surcharges, with SIA saying on Tuesday it would extend its fuel levy of US$5 per sector to all its routes from next week.

Qantas introduced a US$4.30 surcharge for domestic flights and a US$15 levy for international flights on May 17, with no-frills domestic rival Virgin Blue following suit two days later.

Japan Airlines System, Asia's top carrier, is planning to raise fares on international flights by 5 percent although a date for the hike has not yet been decided, spokesman Hirohide Ishikawa said.

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