Published November 4, 2008

Airlines skittish as passengers dwindle

Carriers struggle to adjust fuel surcharges while traffic falls on global scale

By NISHA RAMCHANDANI

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(SINGAPORE) Singapore Airlines (SIA) led the charge by first cutting its fuel surcharges when the price of jet fuel eased and since then, other airlines like Qantas, Lufthansa, Thai Airways and Cathay Pacific have joined the pack. But while this may be welcome news to travellers, the aviation industry is hardly in the clear as it faces up to falling passenger traffic.

About a month ago, jet fuel was going at some US$131 per barrel. The average price of jet fuel as at October 24 was US$85.10 a barrel, down 18.4 per cent from a year ago and a staggering 35.5 per cent drop from a month earlier.

In light of the lower jet fuel prices, SIA announced in September plans to reduce fuel surcharges by up to 10 per cent on short- and medium-haul flights. Fuel surcharges for long-haul flights, however, still remain in place.

Then, Thai Airways International cut fuel surcharges by up to 30 per cent in early October while Malaysia Airlines reduced fuel surcharges for 20 domestic and 33 international destinations effective October 20.

German carrier Lufthansa announced on Oct 15 that its surcharge for long-haul flights would be reduced by five euros (S$9.42 ) to 92 euros per flight segment. Still, five euros is only a quarter of the total hike in fuel surcharges this year for its long-haul flights. Fuel surcharges stood at 77 euros each way on March 13 and rose 20 euros in stages to 97 euros by July.

However, Lufthansa will 'continue to monitor oil prices, and make adjustments to the fuel surcharge depending on further trends in the price of jet fuel,' a spokesperson for Lufthansa added.

From October 21, lower fuel surcharge kicked in for British Airways flights between Singapore and London dropping by as much as US$63 per sector so that the airline would not lose out to other industry players. This came on the heels of a cut in fuel surcharge for its Singapore-Australia flights one month ago.

'In spite of the fact that our cost of fuel has not reduced, we have done this to remain competitive in the marketplace. Our fuel bill is still expected to rise 50 per cent this year from &pound2 billion (S$4.7 billion) to &pound3 billion,' a spokesperson for British Airways said. The weaker pound against the US dollar is one of the reasons that oil remains the airline's biggest cost.

And Cathay Pacific adjusted its fuel surcharges from Oct 1, with fuel surcharges for long-haul flights and short haul flights down by 10 per cent and 15 per cent respectively.

'However, while costs have gone down, demand has gone down further,' pointed out a spokesperson for Cathay Pacific.

Indeed, passenger traffic is now dropping on a global scale, despite the mantra in earlier months that Asia Pacific carriers were in good stead to withstand the turbulence.

The latest figures from International Air Transport Association (Iata) show that Asia-Pacific carriers posted a 6.8 per cent drop in passenger traffic for September and a 10.6 per cent decline in cargo traffic.

Another reason to keep fuel surcharges in place is that airlines which may have hedged fuel costs at higher levels are unlikely to be in a position to cut fuel charges.

In addition, 'fuel surcharges only cover a small percentage of incremental costs,' said Jet Airways' regional vice-president for South-east Asia, Gerry Oh, pointing to the astronomical heights that jet fuel reached over the last few months. In early July, for instance, the price per barrel for jet fuel was US$181.

'At this rate, the airline industry's losses may be even deeper than our forecast US$5.2 billion for this year,' Iata director-general Giovanni Bisignani has warned. 'We are in an emergency situation.'