Abu Dhabi, UAEWednesday 26 February 2020

High jet fuel costs put pressure on airline ticket prices

Airlines have more to worry about than the slump in travellers: the cost of jet fuel is sky high.

As the Ramadan lull approaches, airlines are also dealing with another worry: sky-high jet fuel prices that have sent costs up to near-record levels this year.

The price of a barrel of jet fuel has risen more than 50 per cent from a year ago to US$132 (Dh484). And airline executives say fuel prices could remain at sustained high levels, making air travel more expensive.

"Fundamentally, everyone is now living in a world of permanently high fuel prices," said Julie Southern, the chief commercial officer of Virgin Atlantic. "At some point there is going to be a need to fundamentally re-price air travel."

Airlines would now have to consider a "sensible and sustainable" price for passengers, she said. For two decades, air travellers have benefited from lower fuel prices and increased airline competition.

"Core prices haven't changed very much if you look at the long term," she said. "In the sweep of history, over the last 10, 15, 20 years, passengers have had a very good deal. They've seen prices tumble."

Airlines will spend $60 billion on fuel this year, and local airlines were quick to point out that this was a global problem.

Emirates Airline said last week fuel accounted for 35 per cent of its operating costs, with its fuel bill rising 40 per cent in its the fiscal year ending in March, compared with the previous year.

"The pressure is on everybody," said Adel Ali, the chief executive of Air Arabia. "When fuel goes up the ticket prices have gone up as well globally."

As fuel costs rise, airlines are forced into a difficult balancing act of trying to raise ticket prices to cover these extra costs without pricing themselves out of the market. "Airlines cannot raise ticket prices more than what the market takes and what the competition is," Mr Ali said.

"Right now we are in a peak time of the year, so tickets prices do go up. Some places you reduce prices to stimulate business and in some markets, you raise prices."

The summer travel season was strong this month and last month, with high aircraft occupancy rates, he said.

Virgin Atlantic's London to Dubai service has also been strong this summer, Ms Southern said. Flights were more than 80 per cent full on average, including 90 per cent in the economy cabin, she said.

"Revenue has been growing in all cabins, so we are really pleased on that."


Updated: July 31, 2011 04:00 AM



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