Perspective – February 2011

Fuel price rises to hit outbound traffic?

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Ian McMahonFuel price rises to hit outbound traffic?

IATA’S monthly reports on the state of the global airline industry do not, I must admit, always make for the most exciting reading, comprising, as they do, a litany of statistics detailing percentage increases (or, just as often, decreases) in passenger numbers, available capacity and load factors.

But the fact is that the two most recent reports from the world airline body have contained an important warning for agents and others contemplating their future business prospects in 2011.

As travelBulletin reported back in December, the association had identified an average annual oil price of $US79 a barrel (Brent crude) as one of the major drivers of last year’s improved airline profit performance.
Indeed the airline body calculated that a rise in oil prices to $US84 a barrel would wipe $US9.1 billion off combined airline profits in 2011.

The bad news, as you can read elsewhere in this issue, is that oil prices have currently soared to around $US100 a barrel.

“For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs,” said IATA director general and chief executive Giovanni Bisignani.

Which is why, even with the buffer of a strong Australian dollar, we are seeing airfare increases, in the form of higher fuel surcharges, once again being implemented by the airlines.

Announcing an increase in fuel surcharges for Qantas international flights of between $20 and $50 one-way, the carrier’s managing director Alan Joyce explained: “Over the past four months, the Australian dollar has appreciated by six per cent, while jet fuel prices rose by around 24 per cent.”

Meanwhile turmoil in the Middle East inevitably raises questions about the supply of oil.

Of course there is some silver lining to this cloud over the cost of air travel – an increasing number of airlines are treating fuel surcharges as the increases they really are and paying commission to agents on some fares at least.

Thai Airways is now doing so – as, indeed, is Qantas.

But there must surely come a time when airfare increases will begin to dampen Australians’ demand for travel especially in a climate where interest rates are likely to rise; floods and cyclone have robbed thousands of our fellow citizens of income and assets; and recovery from these disasters will require massive diversion of the nation’s resources.

These are all factors to be taken into account by agents as they set their business plans for 2011.







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