Fuel prices dragging down airlines but no dent in holiday plans of Asians
Fuel prices dragging down airlines but no dent in holiday plans of Asians
Vijay Joshi
Associated Press
Kuala Lumpur, Malaysia
The math of the aviation industry isn't rocket science. Simply
calculated, higher fuel bills mean lower profits.
The unrelenting climb of oil prices has badly hurt the bottom
lines of airlines across the Asia-Pacific region, bringing losses
at Thai Airways, Malaysia Airlines and China Southern, and
forcing many to raise ticket prices through higher fuel
surcharges.
"Everyone is suffering from high oil prices, even the best-
managed carriers," said Andrew Herdman, the director general of
the Association of Asia Pacific Airlines, which represents 17
regional carriers.
But the good news for consumers is that ticket prices have
gone up only modestly, not enough to dampen travel in the year-
end holiday season, analysts and industry watcher say, as
Malaysian property evaluator Jeannie Tan will attest.
Tan is planning an 11-day package tour to China the end of
September on Malaysia Airlines, and says she was not deterred
when the fuel surcharge was raised in July from 38 ringgit
(US$10) to 53 ringgit
"It's not really a big deal. If (the hike) is less than 100
ringgit. I don't think I will feel the pinch," Tan said. "It
won't affect either my plans or the tourism market."
Singaporean teacher Francis Lau, planning a year-end Hong Kong
holiday, also said he would have second thoughts only if the fare
went up by up more than S$100 ($59).
Like Lau and Tan, hundreds of thousands of other Asians and
Australians will go ahead with vacations, but with small changes
in travel plans. Instead of taking long flights, which have
higher fuel surcharges, they will go to spots closer by, said
Imtiaz Muqbil, a Bangkok-based travel analyst.
For example, Qantas imposed an additional $11 surcharge on
international routes but only a $4.50 surcharge on flights to New
Zealand. Thai Airways raised its surcharge on regional routes by
$5 and on intercontinental flights by $15.
Muqbil, the editor of Travel Impact Newswire, said holiday
makers may also decide to stay in cheaper hotels and forgo the
luxury of a spa or that extra bottle of wine.
"I won't say it will result in a downturn. People will travel.
There is no doubt about that. But instead of going to Europe, you
will go to Thailand," he said. "I don't think there will be a
decline at all in the travel industry."
In fact, the seats on flights to Asian destinations are
overbooked during the upcoming Malaysian school holidays in the
first week of November, said Chong Voon Siong, operations manager
of Amerasia Tours and Travels in Kuala Lumpur.
"There are no cancellations at the moment," he said.
Jet fuel is for most airlines the single largest operating
cost. Last year, it accounted for 20 percent of AAPA's member
airlines' costs. That figure is approaching 30 percent now. Their
collective fuel bill last year was $12 billion. It is expected to
be $18 billion to $20 billion. this year.
The high price has taken a heavy toll on an industry that
never has been very profitable.
Malaysia Airlines reported a loss of 280.7 million ringgit
($73.9 million in the April-June quarter. Thai Airways
International had a loss of 4.78 billion baht ($116 million in
the same period.
And China Southern Airlines Co., one of China's biggest
carriers, reported a net loss of 907 million yuan ($112 million)
in the first half of 2005.
Hong Kong airline Cathay Pacific Airways Ltd. reported a 6
percent drop in its first-half net profit while Singapore
Airlines' first quarter net income fell 8 percent.
They all blamed jet fuel prices, which are up 50 percent over
last year.
Still, fares have gone up only 10 percent since 2004, mainly
because of airlines' reluctance to impose higher fares in a
highly competitive market, said AAPA's Herdman.
"Most people in the industry are focused on matching price and
maintaining market share. If someone is brave enough to raise the
fare and it is not matched, they lose their nerve and drop the
prices again," he said.
Asia-Pacific airlines have also been hit by a modest growth of
3 percent to 4 percent in cargo traffic, compared to 7 percent in
passenger traffic over last year. Cargo accounts for about 20
percent of revenue for Asia-Pacific airlines.
The latest crisis has increased the motivation of airlines to
improve fuel efficiency, optimize operational procedures and
minimize fuel wastage.
Most airlines are now focused on reducing the taxiing and take
off-periods and reaching cruising altitude quickly. A Boeing 747
jumbo consumes as much fuel per passenger per mile at cruising
altitude as a small passenger car. The new Airbus A380 consumes
even less.
Herdman said airlines are also talking about coordinating with
various governments and air navigation controllers to let planes
fly in a straight line to conserve fuel. At present, they are
guided through the skies by a network of radio beacons that make
the flying paths a zigzag.
Many airlines have hedged against fuel prices by buying future
stocks. But it is not a panacea to all their woes, said Damien
Horth, aviation analyst with UBS Warburg Asia Pacific in Hong
Kong.
"It's just a short-term protection," he said. "The only way to
deal with higher oil prices is to either raise fares, which is
difficult, or cut costs."