Saturday, Aug 23, 2008
Gulf News
Dubai: Lower fuel prices may not result in cheaper travel for people flying on major UAE airlines anytime soon.
The country's top carriers declined to say if they would cut high fuel surcharge on tickets in line with the price of fuel easing from the record levels in July.
"The increase in fuel prices has had an inflationary effect on all our operational costs. However, Emirates will continue to work very hard to shield our customers from major price fluctuations while delivering a high quality in-flight product and travel experience," an Emirates spokesperson said when asked if the airline was considering a reduction in fuel surcharge.
Etihad Airways also avoided a direct response to the question.
"Fluctuating fuel costs are a challenge for all airlines. Fuel remains a significant proportion of Etihad's total costs, and we continue to monitor the situation on a daily basis. The fuel surcharges vary within each market," company spokes-man Thomas Clarke told Gulf News.
The two airlines did not disclose how many times they have adjusted their fuel surcharges this year, or how much passengers have to pay in additional fuel burden.
Record high
Oil fell close to $110 per barrel on August 19 but prices are not seen likely to return to below $100 levels of last year. Crude set a historic price record of $147.27 on July 11. Yesterday, the price stayed close to $118, reinforcing the view that turbulence is not over yet for the airline industry.
Airlines around the world impose different rates for fuel surcharge depending on routes.
Merina Abu Tahir, Malaysia Airlines general manager for the Middle East and Africa, said the airline increased fuel surcharge in late June on the Dubai-Kuala Lumpur route from Dh350 to Dh580.
She said the surcharge "only offers partial relief from the price of jet fuel" as the incremental cost is not fully passed on to the public.
"The price of jet fuel has till recent times remained very high at around $140 per barrel. We are closely monitoring the fuel price situation given the volatility, and monitoring what is happening in the market.
"Decisions on fuel surcharge will be based on the movement of the fuel price over a period of time rather than what could possibly be just a short-term decrease in fuel price," she told Gulf News.
In July, German carrier Lufthansa raised its fuel surcharge on long-haul routes by five euros to 97 (Dh533) per flight segment, while the hike for domestic and intra-European routes was three euros to 27 (Dh148) per flight segment.
Before that Lufthansa had increased fuel surcharges on June 16 on European flights by three euros and on long-haul flights by 10 euros.
Anthony Concil, a spokes-man for the Geneva-based industry group International Air Transport Association (IATA), told Gulf News airlines would welcome the recent declines in world crude prices but it would take time before travellers begin feeling the relief of lower prices.
"Airlines purchase their fuel months before it is actually delivered. It [this month's price decline] will take a while to work through the system," he said, adding that in the end it will be a commercial decision for each airline to make.
Concil said the airline industry is still faced with high costs of running business amid weakening global conditions and geopolitical tensions that drive oil prices up.
Last year the cost of global crude averaged $73 per barrel, while this year it has averaged $113.
According to IATA, each dollar increase in the price of oil means an extra $1.6 billion a year in fuel cost for the industry.
Due to the wild swings in global crude prices in recent months, many airlines have active fuel hedging programmes. For 2008, Malay-sia Airlines has hedged 48 per cent of its fuel requirements at $102 per barrel.
Emirates saved $242 million in fuel costs through hedging during the April 2007-March 2008 financial year.
Struggle for balance
Airlines have struggled to strike a balance between passing additional fuel costs to customers and not making travel too expensive.
The pressure on budget airlines has been much greater as the fuel bill forms a larger chunk of their overall expenses compared to full-service carriers.
Air Arabia spokesman Housam Raydan said the region's biggest low-fare airline was able to avoid increasing ticket prices in the past few months despite high oil prices and was happy global oil prices were making a retreat from their record levels.
"Increasing the fuel surcharge was a serious option in the recent months. But while monitoring high oil prices, we had always hoped that we would not have to exercise this option," he said.
Gulf News 2008. All rights reserved.
