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Fuel hits historic lows yet airfare surcharges persist

June 12, 2015 Aviation, Headline News No Comments Email Email

egtmedia59As tumbling oil prices dive to nearly half their level of last year, airlines are coming under pressure to pass the savings on to consumers.

Against that, investors are keen for airlines to hang onto the rare gains, in the hope some will be passed on in the form of dividends.

Fuel surcharges persist (sometimes under different names) even as profits soar. Virgin Australia stripped the last surcharge from its international network in January, but Qantas, Emirates and Singapore Airlines obstinately retain them.

Qantas and Emirates apply surcharges to the tune of AUD 1080 for a return business-class flight from Australia to London, and AUD 570 for economy. Consumer attention was drawn to the practice recently by the Sydney Morning Herald, which pointed out that surcharges hit frequent flyers hardest.

They also hit travel agents because they are non-commissionable, so reduce the commission paid on the whole ticket.

Airlines, for their part, are keen to attribute their recent financial turnarounds to any reason other than plunging fuel prices.

When IATA director general Tony Tyler told delegates at IATA’s 17th annual general meeting in Miami last week that airlines were likely to generate about USD 29.3 billion in net profit this year, he went on to ask rhetorically: “What’s changed the industry’s fortunes?”

“Many assume that the fall in fuel prices was the main driver,” he continued, conceding that “of course it has helped”.

“But the 20% appreciation in the US dollar has moderated this to a very large degree for many airlines,” he added. “And a significant amount of the fuel spend is hedged at higher than market level.

“The strongest driver of improved profitability is efficiency. This year we expect airlines to fill 80.2% of their seats – a record high load factor that shows how much progress has been made in fine-tuning and focusing the business.”

So increased efficiency, rather than any drop in oil prices, is the key, according to the airlines.

Tyler went on to say that the airline industry as a whole would earn its cost of capital this year, possibly for the first time in history. “This is positive news.”

The profits, however, make the fuel surcharges applied by Qantas, Emirates and Singapore Airlines increasingly hard to justify.

IATA retorts that critics should  look at what airlines will be making this year on a per passenger basis. In Asia Pacific, the figure is USD 4.24, IATA says.

Written by Peter Needham

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