Fares fall for Cathay as airlines struggle
High fuel prices are hitting the airline industry hard as demand for travel slows.
Cathay Pacific estimates that economy fares have dropped between 8% and 10% this year and news agency Bloomberg reports that the Kong Kong-based carrier expects “disappointing” first-half earnings.
Other airlines are also feeling the headwinds of economic uncertainty.
“If we discount the industry’s growth by two percentage points as a result of the extraordinary events in 2011, airlines still managed an expansion in the range of 5-6%,” commented said Tony Tyler, IATA’s Director General and CEO.
“Given the prevailing economic conditions, with some European states returning to recession, passenger demand is holding up well. But this is bringing little relief to the bottom line because yields are not keeping pace with the continued very high price of oil.”
Oil prices have remained stubbornly above USD100/barrel (Brent crude) for the past 14 months. In 2008, oil prices rose from USD90/barrel in January to a peak of US147/barrel in late July. But by November, they had fallen back to less than USD50/barrel.
“We have not seen such sustained high oil prices previously,” Tyler said. “Jet fuel prices have risen 8% since January. Considering that fuel now accounts for 34% of average operating costs, it’s an increase that hurts.”
Cathay, biggest carrier in Asia, said it had cut fares to keep itself competitive in the face of soaring fuel prices that have climbed 40% in two years.
Cathay has put on hold all hiring of ground staff. It has offered cabin crew voluntary unpaid leave, Bloomberg reported.
Singapore Airlines has also reportedly offered some pilots unpaid leave as demand slows. The Singapore-based carrier, which reported a loss for the quarter ended March, has reduced freighter flights as well.
Written by : Peter Needham
