The cost of air travel is to increase with carriers slapping a surcharge on tickets in an attempt to counter the impact of a huge rise in fuel prices.
The aviation sector has seen the price of its fuel rise as a consequence of global crude hitting $40 a barrel — its highest level in 13 years. Soaring oil prices have also dragged up gas prices by 44% over 12 months.
Oil experts are divided on the direction of crude prices, with some warning they could go as high as $50.
But the oil and gas group BG insists even the current level is unsustainable, although it believes gas prices will continue rising.
British Airways (BA), which is putting a £5 tariff on return tickets, blamed its fare increase on ”fluctuations” in the price of oil but insisted it would review the surcharge regularly and adjust it when possible.
The CEO of Qantas, which is adding A$16, Geoff Dixon, said its tariff would be added from next Monday to mitigate the extra costs associated with a 60% increase in aviation fuel over 12 months. ”Fuel represented about 15% of Qantas costs last year, the second- largest cost to the group after salaries and wages,” Dixon said.
Qantas, 19% owned by BA, last introduced a surcharge in 2000 for similar reasons, while Lufthansa of Germany has just introduced an extra charge and Scandinavian airline SAS is considering a similar move.
Against this trend, the CEO of low cost carrier easyJet, Ray Webster, said his company would definitely not be following suit and promised that fares would remain low.
”The decision to raise fares will be disastrously counterproductive for British Airways. Rather than taking steps to plug the hole in their cost base, higher fares will result in fewer people travelling, lower load factors and less revenue,” he argued. The airlines are already struggling against increased competition and reduced demand.
Low refinery stock levels have only exacerbated growing problems for a range of industrial energy users as American petrol futures have risen by 36% and global crude prices by 20% this year.
Continuing violence in Iraq and instability in other Middle East oil producing countries have led to fears of shortages.
Demand from a booming Chinese economy and a determination by the Organisation of Petroleum Exporting Countries (Opec) to keep a brake on production have also helped push up prices.
On Monday Saudi Arabia, an Opec member and the world’s largest oil producer, successfully talked down the market by saying it would recommend increasing output at the next cartel meeting, on June 3. Prices fell $1 on Monday this week. On Tuesday American Nymex crude for June delivery was barely changed at $38,85, while the slightly lower valued United Kingdom North Sea Brent blend crude was trading at just less than $36.
The International Energy Agency (IEA) welcomed the Saudi move but said more would need to be done to force down prices further.
”I don’t think it will be enough, as it will be a long process to cool the market, but it’s a first step, and I am happy with this step,” said IEA executive director Claude Mandil.
A Reuters survey of oil analysts showed 2004 crude price projections have been raised by 10% over the past eight weeks. But BG chief executive Frank Chapman said sentiment was driving the market rather than fundamental supply and demand, and predicted the future direction of prices would be downwards. — Â