Asia airlines may hike fares on higher fuel costs

Asia airlines may hike fares on higher fuel costs

KUALA LUMPUR (Reuters): Asian carriers may have to increase air fares to cope with rising jet fuel costs despite improving passenger and freight load factors, an industry official said on Tuesday.

"Ultimately, like any business, if your costs go up, then that has to be reflected in the prices charged to the customer," Richard Stirland, director general of the Association of Asia Pacific Airlines (AAPA), said at a news conference.

"The demand for aviation fuel is actually growing faster than the demand for oil in general," he said.

"Because of market pressures, it's likely that even if the price of a barrel of oil stabilizes or even declines, it doesn't necessary follow that aviation fuel prices will also stabilize or decline."

Stirland was speaking to reporters after announcing the 18- member industry group's relocation to Kuala Lumpur in search of more stable political and economic conditions after 30 years in Manila.

He said domestic flights in particular faced possible fare hikes as airlines had less flexibility to change domestic schedules and concentrate on better-yielding routes.

AAPA's 18 members include China Airlines, Cathay Pacific Airways, Air New Zealand, Qantas Airways, Philippine Airlines, Singapore Airlines, Thai Airways International, Japan Airlines, Korean Air, Vietnam Airlines, EVA Airways and Malaysia Airlines.

Stirland expected Asia air traffic growth, negative during the region's financial crisis, to maintain a double-digit recovery rate year-on-year in the near term.

"We're thinking 11-12 percent growth in the short term, and perhaps tailing off to something just below double digits in 18 months' time," Stirland said of monthly passenger traffic growth.

He added that cargo traffic was expected to grow by 12-15 percent year-on-year over the long term in line with increasing trade both within Asia and with the rest of the world.

Stirland also expected yields, measured by revenue per passenger, to pick up as load factors rose.

"There is no sign that the airlines are going to order lots more aircraft...so airlines will be able to improve their yields," he said.

Air safety

Stirland acknowledged a widely-held perception that Asian airlines were more prone to accidents than their Western counterparts, but said members were taking steps to erase that image to cling on to customers.

"Statistically, you can prove that over the past five years, there has been a greater incidence of significant accidents in Asia than equivalent airlines in Europe," he said. "That is undeniable."

A 20-year-old Alliance Air Boeing 737-200 aircraft crashed into a housing estate and burst into flames in eastern India on Monday, killing 55 people and triggering a debate over the use of aging aircraft.

Stirland said constant training and checking of cockpit crews in the region was needed, in addition to breaking cozy ties between national airlines and regulatory authorities to ensure proper checks.

Airlines in China had recently recruited safety officials from the United States in an effort to improve their safety records, he said.

On the group's membership, Stirland said he expected to welcome mainland Chinese airlines into AAPA within the next 18 months despite difficulties caused by the current inclusion of Taiwan's China Airlines and EVA Air.

Beijing considers Taiwan a breakaway province and has threatened to invade if the island declares independence or drags its feet indefinitely on reunification.