Now everyone’s feeling the pain

IF you are a travel agent struggling to explain to a valued customer exactly why another US$100 has been added to the cost of an air ticket, try telling him this:

For every three dollars an airline makes in revenue, more than one dollar goes to pay the fuel bill.

According to figures provided by Virgin Blue chief executive, Brett Godfrey, 35 percent of the Australian airline’s revenue goes on fuel today, compared to 24 percent last year and 19 percent the year before that.

Virgin Blue’s figures almost certainly reflect the industry norm, so it is little wonder that airline passengers could soon be paying as much in fuel surcharges as they pay for their base airfare, research by Flight Centre suggests.

Flight Centre said Japan Airlines would soon become the first carrier to charge travellers an A$1,000 (US$962) -fuel surcharge on its Sydney to London via Tokyo route when its latest surcharge increases were applied from July 1.

Thai Airways and Malaysian Airlines have also applied a new round of their fuel surcharges, taking the levy nearer to A$1,000 for their London routes.

Singapore raised fuel surcharges for tickets issued from June 24 - the third time this year the company has raised fuel surcharges, as jet fuel prices have surged almost 50 percent so far in 2008.

Flight Centre, managing director, Graham Turner has called for international airlines to follow the lead of Qantas and Virgin Blue by increasing their base fares to include the fuel surcharges.

“At a time when most experts are predicting further fuel price rises, surely the time has come for fuel to once again be included in the base airfare,” Turner said.

Stockbroker Morgan Stanley has estimated that higher oil prices will add 40 percent to the “cost of flying”, although this figure will include those never-ending extra charges that airlines are using to ensure that every cent of available revenue is being squeezed out of passengers.

“This situation - skyrocketing fuel costs-has gone from a serious cost problem a year ago into one that is going to completely torpedo the way airlines do business,” said Michael Boyd, airline consultant at The Boyd Group.

Tiger Airways passengers were recently hit with a US$5 fee to check in baggage in addition to excess baggage charges already applied to luggage heavier than 15 kg. The move comes after American Airlines incensed US travellers by slapping a US$15 fee on the first checked bag for many economy travellers.

And business and first-class passengers travelling with British Airways are to be forced to pay higher fuel surcharges than economy passengers for the first time.

BA chief executive, Willie Walsh, told travel agents the fuel surcharge was being restructured to spread some of the increase in the airline’s fuel bill “among those passengers travelling in cabins with fewer seats, using more space and benefiting from larger baggage allowances, as we burn more fuel per passenger to fly them”.

In contrast to the pain being felt by most other airlines, AirAsia claims it can still make a sustainable profit even if crude oil price hits US$200 a barrel.

Chief executive Tony Fernandes said, “We’ve taken a very different approach, in that we will market ourselves out of this problem. I think to put your head in the sand and cry about oil and cut routes is not the solution.”

Fernandes said the solution is keep opening viable routes and selling more products onboard, and finding ways to “monetise the 22 million ready audience” on its flights.

In the US, the major airlines have flagged cuts to services and aircraft sales. In Europe, Lufthansa chairman and CEO Wolfgang Mayrhuber said that the industry is in major flux and airlines have to be careful with capacity.

Lufthansa had no plans to axe routes, Mayrhuber said, but “there are questions regarding the continued strength of growth markets like the Asia/Pacific or Middle East”, and LH is manipulating up to 1,500 fares each day in order to remain competitive as demand weakens.”

He predicted, “What we will see in the future is a bigger seasonality of traffic in the winter and summer periods.”