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Will fuel hike push up fares and kill free drinks?

December 8, 2016 Headline News 1 Comment Email Email

egtmedia59The rising cost of fuel may force some of Asia’s top airlines to end their generous custom of lavishing free alcohol and in-flight entertainment (IFE) on passengers.

Singapore Airlines broke new ground by rolling out on-board alcohol service to every passenger in the 1970s. Many passengers now take such perks for granted, along with free IFE.

OPEC’s oil production cuts, announced last week, may make the era of such plentiful  freebies unsustainable for some carriers by driving up the cost of fuel. An article published by Bloomberg news service cited analysts who forecast such outcomes.

As well as free alcohol and IFE, other unprofitable options to face the axe may include under-performing routes. Other savings could involve retiring older aircraft that use more fuel – or resorting to another tried-and-true revenue-raising measure – hiking fares.

Drinks anyone?

Drinks anyone?

Fares have been falling in real terms for decades. In the 1960s, a return trip to London from Australia cost about the same as a new Holden of the same year.

After two years of wrangling, Saudi Arabia and the rest of the OPEC oil cartel finally agreed at a meeting in Vienna on 30 November 2016 to a cut in production. Oil prices rose immediately, reaching their highest level so far this year.

The US has for the past two years been one of the world’s  largest oil producers, and sometimes the largest, along with Saudi Arabia and Russia. US president-elect Trump says he is determined to  wean the US off imported oil as far as possible.

The OPEC deal and oil price hike came at a bad time for premium Asian carriers like Singapore Airlines and Cathay Pacific, which face diminishing premium traffic and excess capacity.

Asian airline profit margins are about half those of their North American counterparts, according to Bloomberg.

Written by Peter Needham

Currently there is "1 comment" on this Article:

  1. Peter says:

    Fuel is not going to rise very high.

    Very different drivers these days. Will remain in in 40’s or low 50’s throughout 2017 unless there is some global catastrophe and if that happens we have a bigger problem than higher airfares.

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