Post by corsair67 on Jul 4, 2008 11:03:26 GMT 12
I really don't see what option the airlines have at the moment: but then once the fares have gone up, I can't really see them coming back down again, even if the cost of fuel does eventually fall back somewhat.
From The Australian -
www.theaustralian.news.com.au/story/0,25197,23964101-23349,00.html
Fuel costs force Air NZ to lift prices again, but analysts warn this may backfire
Steve Creedy, Aviation writer | July 04, 2008.
AIR New Zealand will boost fares by up to 5 per cent to offset rising oil prices, but many analysts have warned it may pay a price in terms of falling demand.
The Kiwi carrier said yesterday it would raise domestic and trans-Tasman fares by 3 per cent from July 17 and international fares by 5 per cent.
The increases come after fare rises in June and are the fourth so far this year.
"With jet fuel now above $US170 a barrel we cannot continue to absorb the significantly higher cost of fuel, of which this increase will only partially recover," deputy chief executive Norm Thompson said.
But analysts expressed concern that the latest Air NZ fare increases could depress demand in the current economic environment. "Given a series of fare increases by Air NZ in the past few months, we envisage the latest fare increases could trigger a downside impact in demand," said Deutsche Bank analyst Cameron McDonald, who predicted Air NZ's load factor this financial year would fall 3.2 percentage points to 75 per cent.
Mr McDonald also noted that Air NZ was facing "rather irrational competition" in a market that had more carriers than it could probably accommodate.
In Australia, Regional Express last week boosted its fuel surcharge, and Qantas chief executive Geoff Dixon this week reiterated his stance that the airline would cut capacity, retire planes and raise fares further if fuel costs kept rising. "There's little doubt that if oil goes up, the more people will pay to travel and particularly the more they'll pay to travel with airlines," he said.
"And that won't be just modest, that will be a lot."
Mr Dixon said it was difficult to say how high fares would get. But he said oil was 35 per cent of the airline's cost inputs. "So obviously to make a profit and to continue to invest in the business you have to charge at a rate where you can make the business viable," he said.
"And I think other people can extrapolate that if fuel goes up another 20 per cent (by how much) the fares would go up."
However, Mr Dixon stopped short of agreeing with Malaysia Airlines executive Idris Jala that travellers could face 50 per cent fare rises if the industry was to survive. He said Malaysia had "a different cost base and a different airline to ours".
"Fifty per cent is a lot," Mr Dixon said.
Mr Dixon said some routes could become unviable as the price of oil increased and the airline would consider all its options.
Qantas has already announced cuts of about 10 per cent of its capacity and this week moved to replace ageing 737-400 aircraft flying its Perth-Melbourne route with new Airbus A330-200 aircraft.
Mr Dixon said the airline could take about 14 per cent of its aircraft out with little effect on its bottom line.
"If we're running a lot more routes that are not profitable we will have to cut, and we will cut," he said.
"The overall responsibility of the management is to ensure the long-term success of the company and if that means some short-term pain, then we will have to do that."
A Qantas spokesman said yesterday the airline had no immediate plans for an across-the-board fare rise but it had increased fares on some routes for tickets issued in Australia from June 26.
"We will continue to adjust pricing on a case-by-case basis in the light of current fuel prices," he said.
From The Australian -
www.theaustralian.news.com.au/story/0,25197,23964101-23349,00.html
Fuel costs force Air NZ to lift prices again, but analysts warn this may backfire
Steve Creedy, Aviation writer | July 04, 2008.
AIR New Zealand will boost fares by up to 5 per cent to offset rising oil prices, but many analysts have warned it may pay a price in terms of falling demand.
The Kiwi carrier said yesterday it would raise domestic and trans-Tasman fares by 3 per cent from July 17 and international fares by 5 per cent.
The increases come after fare rises in June and are the fourth so far this year.
"With jet fuel now above $US170 a barrel we cannot continue to absorb the significantly higher cost of fuel, of which this increase will only partially recover," deputy chief executive Norm Thompson said.
But analysts expressed concern that the latest Air NZ fare increases could depress demand in the current economic environment. "Given a series of fare increases by Air NZ in the past few months, we envisage the latest fare increases could trigger a downside impact in demand," said Deutsche Bank analyst Cameron McDonald, who predicted Air NZ's load factor this financial year would fall 3.2 percentage points to 75 per cent.
Mr McDonald also noted that Air NZ was facing "rather irrational competition" in a market that had more carriers than it could probably accommodate.
In Australia, Regional Express last week boosted its fuel surcharge, and Qantas chief executive Geoff Dixon this week reiterated his stance that the airline would cut capacity, retire planes and raise fares further if fuel costs kept rising. "There's little doubt that if oil goes up, the more people will pay to travel and particularly the more they'll pay to travel with airlines," he said.
"And that won't be just modest, that will be a lot."
Mr Dixon said it was difficult to say how high fares would get. But he said oil was 35 per cent of the airline's cost inputs. "So obviously to make a profit and to continue to invest in the business you have to charge at a rate where you can make the business viable," he said.
"And I think other people can extrapolate that if fuel goes up another 20 per cent (by how much) the fares would go up."
However, Mr Dixon stopped short of agreeing with Malaysia Airlines executive Idris Jala that travellers could face 50 per cent fare rises if the industry was to survive. He said Malaysia had "a different cost base and a different airline to ours".
"Fifty per cent is a lot," Mr Dixon said.
Mr Dixon said some routes could become unviable as the price of oil increased and the airline would consider all its options.
Qantas has already announced cuts of about 10 per cent of its capacity and this week moved to replace ageing 737-400 aircraft flying its Perth-Melbourne route with new Airbus A330-200 aircraft.
Mr Dixon said the airline could take about 14 per cent of its aircraft out with little effect on its bottom line.
"If we're running a lot more routes that are not profitable we will have to cut, and we will cut," he said.
"The overall responsibility of the management is to ensure the long-term success of the company and if that means some short-term pain, then we will have to do that."
A Qantas spokesman said yesterday the airline had no immediate plans for an across-the-board fare rise but it had increased fares on some routes for tickets issued in Australia from June 26.
"We will continue to adjust pricing on a case-by-case basis in the light of current fuel prices," he said.
