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    Jan 28, 2015

    Airlines cut fuel surcharges, but fares may rise


    ASIAN airlines are slashing fuel surcharges as oil prices hover at six-year lows, but that does not mean cheaper tickets as carriers are likely to bump up fares to maintain margins.

    Australia's Qantas Airways was the latest airline to reduce the surcharge yesterday, but it was also raising base fares to offset the impact of competition on international routes.

    Aviation experts say other airlines are likely to follow suit, because any drop in ticket prices would erode profit margins, which are as low as US$6 (S$8) a passenger globally.

    "During the 2008 financial crisis, for example, low demand meant that airlines lost money despite the fuel costs," said Brendan Sobie of aviation consultancy Capa.

    "Last year in South-east Asia, airlines faced an unsustainable situation with low fares and high fuel prices. Fuel costs may have come down but fares remain low. Ticket prices need to be make money."

    Airlines started adding fuel surcharges in 2004, in response to rising oil prices. Brent crude oil futures , however, have fallen some 60 per cent since the middle of last year. Singapore jet fuel prices JET-SIN, a key regional benchmark, have dropped by about half from a year earlier.

    Cheaper oil could result in airline profits increasing by US$5 billion to US$25 billion this year, but profit per passenger will rise by just US$1 to US$7, the International Air Transport Association estimated, because of intense competition.

    At least two consumer groups are crying foul. Earlier this month, the Australian Competition and Consumer Commission said it would investigate airlines suspected of misleading consumers through fuel surcharges.

    Choice Australia also criticised airlines for what it called "dodgy surcharges". "Most people would expect the cost of fuel to be included in the base price of a ticket. Stripping out part of the fuel cost and calling it a surcharge was little more than a communications ploy during the discounting airfare war," Choice Australia said.

    Qantas' move came a day after Malaysia's AirAsia said "removing fuel surcharges and reducing travel costs will be a huge boost to the tourism industry".

    Philippine Airlines and Cebu Air removed surcharges last month, while Taiwan's China Airlines and Eva Airways have cut surcharges by about 40 per cent over the past six months.

    Meanwhile, Singapore Airlines (SIA) said it would continue to levy its surcharge, which is among the highest in Asia. "It should be noted that while fuel prices have come down in recent months, the fuel surcharge continues to provide only partial relief against SIA's high operating costs from the price of jet fuel," said the airline in a statement.