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The Price Of Fuel Has Dropped And So Should Air Fares

Posted in Airline News, Qantas, Singapore AirlinesNo comments

Australia’s major airlines – and some international carriers – are testing the loyalty of customers by announcing token reductions in their fuel surcharges despite the collapse in the oil price.

Qantas and Singapore Airlines have reduced their international surcharges by about 10 per cent. Qantas has reduced its domestic surcharges by about 20 per cent and, separately, has rescinded a fuel-related ticket price increase of about 3 per cent introduced earlier this year. Virgin Blue has reduced its surcharges by about 20 per cent.

“We are keeping our word,” says Virgin Blue chief executive Brett Godfrey. “We have always promised that if the cost of fuel reversed [came down], we would gladly reverse the surcharge accordingly. That is what we are doing.”

However, all three airlines appear reluctant to forgo all of the price increases made in the name of fuel surcharges.

Since July, the Singapore spot price for jet fuel has dropped by more than 60 per cent in US dollars. Factoring in the fall in the value of the Australian dollar, the price of jet fuel in the local currency has fallen 30 per cent since the middle of the year.

Compared with a year ago, jet fuel is about 15 per cent cheaper in Australian dollars, in spite of the currency’s fall. Yet Qantas is maintaining its fuel bill last financial year of $3.6 billion will still increase this financial year by about $750 million, or 20 per cent.

That outlook is at least 35 per cent better than what Qantas was forecasting in August (a $2 billion increase in its fuel bill), when, despite the gloom over oil prices, the airline was reporting a record gross profit of more than $1.4 billion.

What are consumers supposed to believe?

“The whole concept of fuel surcharges is on the nose and should be gone forever,” says airline industry analyst Peter Harbison, of Sydney’s Centre for Asia Pacific Aviation. “It’s the appropriate time for the industry to say let’s have an end to fuel surcharges – no more.”

Harbison believes rapid changes in the outlook for the airline industry might make fuel surcharges irrelevant anyway, except as one of the many surcharges that are stacked on to frequent flyer redemptions to ensure seats that were once “free” now cost anything up to $800 for a long-haul return flight.

“Already, fuel surcharges don’t apply when airlines start discounting seats and, in some cases, we’ve seen them discounting full fares as well [to attract business travellers],” Harbison says. “In the past few months, the domestic industry in particular has gone dead and the airlines have a lot of empty seats to fill, so we’re going to see a lot of very aggressive discounting in the months ahead.”

The fuel surcharges are also unpopular with Australian travel agents, who are now fighting a class action against the airlines over the issue.

Some airlines, however, are breaking ranks. The low-cost carrier AirAsia, whose subsidiary AirAsia X flies from Kuala Lumpur to the Gold Coast, Melbourne and Perth, became this month “the first airline in the world” to scrap fuel surcharges, even though the group says that doing so would cost about $380 million in revenue.

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