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Last Updated: Sunday, 6 June, 2004, 11:54 GMT 12:54 UK
Air passengers pay for oil hike
Indonesian low-cost airlines
Smaller low-cost carriers hope to cope with the higher oil price
Major airlines are raising ticket prices to help counter higher fuel costs following increased oil prices.

Higher jet fuel prices automatically eat into airlines' profits, meanwhile improved economic conditions are boosting passenger numbers.

Airlines are predicting, therefore, that surcharges can be introduced without damaging their businesses.

It is the talk of International Air Transport Association (IATA) executives meeting in Singapore from Sunday.

The Geneva-based IATA, at its annual conference of about 150 airline executives, is recommending a 3% price increase for intercontinental flights from Europe and 5% for those from other regions.

IATA represents more than 270 airlines comprising 98% of international scheduled air traffic.

Ticket prices

Many, including British Airways, have already added fuel surcharges to ticket prices or raised fares to counter higher fuel costs, said reports from the IATA meeting.

Virgin Atlantic, last month, imposed a fuel surcharge on ticket prices when it raised UK-bought return tickets by 5.

Many of Asia's major carriers, including Singapore Airlines, Australia's Qantas, Malaysia Airlines and Indonesia's Garuda have also introduced surcharges.

Japan airlines is planning to introduce a price rise and Europe's third-largest airline, Lufthansa, has not yet decided to impose a fuel surcharge after revealing that it hedged about 89% of its fuel requirements for this year.

Fuel costs

Higher fuel prices could cost the airline industry between $8bn and $12bn, IATA Director General Giovanni Bisignani warned the conference.

Expectations of a $3bn (1.6bn) profit for the industry this year following $30bn losses in the previous three years are now in serious doubt.

Airlines say there has been a 60% rise in the price of jet fuel over the past year.

Prospects

Asian airline businesses in particular have been looking forward to better trading conditions now that problems associated with Severe Acute Respiratory Syndrome (Sars) and the recent bird flu virus appear to be behind them.

Despite hopes for a recovery, expected profit rises could now go into reverse following the surge in fuel prices, Mr Bisignani, told a news conference.

World oil prices rose to record highs last week but slid on Friday after the Organisation of Oil Producing Countries (OPEC) agreed to raise its crude oil output.

However prospects are good for passenger numbers and the IATA predicts a 7.5% increase for 2004.

Some airlines like Spain's Iberia are even more optimistic and said it predicts ticket sales to increase by 8%.

Choices

"There isn't really much which can be done short of carrying less fuel, putting pressure on airports not to put aircraft on holding patterns or turning off the engines earlier," remarked one analyst at UBS.

Another concern emerging from the conference is the increased cost of security following the attacks of 11September - estimated to be around $10bn.

There are calls for governments to shoulder the cost instead of passing it on to passengers.




SEE ALSO:
Thomas Cook imposes 5 fuel levy
04 Jun 04  |  Business
Malaysia Airlines adds fuel levy
31 May 04  |  Business
US airlines give profit warning
19 May 04  |  Business
Fuel surcharge at Virgin Atlantic
18 May 04  |  Business


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