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Airfares may go up [14-01-2011]  
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Local airlines may increase air fares or fuel surcharges should their regional peers do so as jet fuel prices continue to trend upwards.

As crude oil prices continued to trade above US$90 per barrel, aviation jet fuel price for this week was quoted at US$106.3 per barrel, based on the International Air Transport Association's website.

Avenues for airlines to contend with rising oil prices include increasing airfare, re-imposing or increasing fuel surcharge.

AirAsia X chief executive officer Azran Osman-Rani said the long-haul budget carrier would raise airfares if competing airlines operating similar AirAsia X routes did so.

“We will have to see how far (up) oil price goes, if like 2008 levels (which peaked at US$146), before we can make that decision,” Azran told StarBiz yesterday.

He added that AirAsia X did not have a targeted price increase and it was important for it to maintain its price differentiation in terms of keeping fares lower, compared with other airlines competing on similar routes.

“Our (A330) aircraft also has more seats, which means that the cost of fuel per passenger is lower than other aircraft,” he said.

Malaysia Airlines (MAS) managing director and chief executive officer Tengku Datuk Seri Azmil Zahruddin said fuel surcharge for its tickets was under constant review.

“In light of sustained increase of jet fuel prices in recent months, MAS is monitoring the situation closely. Any increase in fuel surcharge would be benchmarked against our competitors to ensure our fares remain competitive,” he told StarBiz.

An aviation analyst attached to a foreign research house said MAS might at increasing fuel surcharge, following Singapore Airline's (SIA) decision to do so last month.

SIA said in December that it was increasing its fuel surcharge, its first hike since June 2008, due to sustained escalation in the price of jet fuel in recent months.

Based on the airline's website, both SIA and its unit, SilkAir, would see fuel surcharge increase between US$3 and US$25 per sector, depending on the distance and class of travel.

AirAsia group chief executive officer Datuk Seri Tony Fernandes said that the airline was not looking to impose a fuel surcharge or increase air fares at the moment.

“We will continue to monitor oil prices and make a decision when the need arises,” he said.

Meanwhile, a local aviation analyst said low-cost carriers were unlikely to impose a fuel surcharge unless oil prices exceeded US$100 per barrel.

“There has been no indication by the (local) airlines that they are putting on a fuel surcharge. I don't see oil prices exceeding US$100 per barrel as the current rise in oil price is not so much demand driven but more a flow of liquidity due to the quantitative easing measures, where money is flowing into commodities,” he said.

The analyst added that such a concern on fuel surcharge would only arise should oil prices exceed US$100 per barrel for two to three continuous weeks.

The Associated Press reported on Tuesday that some US airlines had started to raise air fares with a Southwest Airlines spokesman attributing the air fare increase to contend with rising fuel costs.

The news report also said the increase on many US domestic routes ranged from US$4 to US$10 per round-trip ticket, depending on the length of the flight.

Low-cost carrier AirAsia scrapped its fuel surcharge in November 2008.The airline tackles fuel price hike with aggressive marketing and the strengthening of its ancillary business instead of relying on fuel surcharge to offset rising fuel cost.

AirAsia group chief executive officer Datuk Seri Tony Fernandes said that the airline was not looking to impose a fuel surcharge or increase air fares at the moment.

“We will continue to monitor oil prices and make a decision when the need arises,” he said.

Source:THE STAR
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