Pay more due to higher fuel surcharge

Passengers to pay more due to higher fuel surcharge

Passengers will have to pay more this year as various airlines increase their fuel surcharge.

Earlier this month, both Qantas and British Airways raised their fuel levy, while Singapore Airlines (SIA) has increased its surcharge twice in the last two months.

Analysts said airlines are scampering to cover the cost of rising jet fuel, which has jumped 33 per cent from a year earlier to around US$116 per barrel.

Apart from raising fares, airlines are also taking other steps to protect their margins from being eroded by more expensive fuel.

Vacations and business travel this year will become costlier.

Analysts said airlines are raising prices and surcharges as the aviation industry revives and as jet fuel price soars.

Jet fuel, which is derived from crude oil, has seen its price rise as the current unrest in Egypt stokes fears of disruptions in supply of crude from the Middle East.

Shailaja Nair, managing editor, Platts, said: "The volatility in crude prices will always affect the final prices of jet fuel. The fear was that if the unrest became worst and if the strikes affected labour at the Suez Canal, whether people will be able to come to work and all...so that was the fear that if there was disruption in the Suez Canal, then international crude prices will go up because obviously crude can't move. "

The benchmark North Sea Brent crude oil futures hit a 28-month high of above US$102 early this month. It is a level not seen since the peak of around US$140 before the financial crisis.

To sidestep the volatility in jet fuel prices, most airlines hedge their exposure.

Analysts point out that some airlines like SIA and Southwest have been very successful at this.

SIA said its general policy is to hedge between 20 to 60 per cent of its annual fuel requirement.

According to analysts, another way to save fuel cost, which accounts for about 40 per cent of operating cost, is to fly fuel-efficient aircraft.

Shukor Yusof, aviation analyst at Standard & Poor's, said: "Flying fuel-efficient aircraft does not mean you are going to reduce your cost. It only works if you can fill your fuel-efficient plane with enough passengers to make it economically viable. But at the end of the day, it still its better to fly fuel-efficient aircraft like the A380, the upcoming A350 and 787 Dreamliner, because that would mean at least a 10-15 per cent reduction in your fuel cost. "

Overall, the International Air Transport Association expects jet fuel to cost US$110.5 per barrel, on average, this year.

Meanwhile, it might be cheaper to fly budget airlines, as a particular low-cost airline in Singapore said all its airfares are without surcharge.

Tiger Airways' Singapore Managing Director, Stewart Adams, said that "customers enjoy the lowest fares, and do not pay any fuel surcharge, because we are successfully managing our own costs."

-News courtesy of Channel Newsasia-