Spiralling oil prices starting to clip Asian carriers' wings
Spiralling oil prices starting to clip Asian carriers' wings
Agence France-Presse, Singapore
Asian carriers are starting to feel the pinch from sky-rocketing oil prices and the pain may worsen after crude futures have soared to an unprecedented US$66 a barrel, analysts said.
Hong Kong carrier Cathay Pacific, among the world's top airlines, is already sounding the alarm after its half-year net profits to June dropped to S$214 million from S$227 milliona year ago.
The earnings decline came despite a huge 21.5 percent gain in turnover of S$3.1 billion from S$2.5 billion, with surging fuel costs to blame for the drop in profits, Cathay Pacific said on Wednesday.
According to the airline, fuel costs for the first half nearly doubled to S$854 million from S$492 million a year earlier.
Coping with fuel costs will be "the biggest single problem" that may dampen growth and demand, Cathay Pacific chairman David Turnbull told reporters.
"The chances of our fuel bill falling is very small," he said. "If it comes down, that's good for the airline, but that would (usually happen because) demand is falling, so that will mean we will lose on the revenue side."
New York's main contract, light sweet crude for September delivery, soared past S$66 a barrel for the first time ever this week, driven by U.S. refinery outages, Mideast tensions and continued strong demand for gasoline in the United States.
The industry has been able to shield itself from runaway oil prices for more than a year by imposing a levy on tickets and hedging against sharp jumps in fuel costs.
But analysts, speaking after oil earlier in the week topped S$65 a barrel, said the high prices may deal a severe blow to the carriers' bottomline.
"I think S$65 is beyond the imagination of carriers this time last year," said Derek Sadubin, general manager of the Center for Asia Pacific Aviation in Sydney.
"Carriers have been reluctant to lock in fuel at high contract prices," he said, adding that as a result they will experience a bigger hit if prices rise further or stay at current levels.
Airlines in the region are already planning further moves to protect themselves either by raising fuel levies or hiking ticket prices outright.
Southeast Asia's leading discount carrier AirAsia said Wednesday it was considering whether to raise fares to compensate for the surge in oil prices.
The carrier, which had first resisted imposing a fuel levy, finally bowed to the pressure from higher oil prices when it introduced a surcharge on tickets last month.
"We want to keep the fares low as that is very important for us," AirAsia's chief executive officer Tony Fernandes was quoted as saying by the Bernama news agency.
"It is getting tougher and tougher to keep the fares down with fuel (prices) where they are now."
Australian flag carrier Qantas also announced on Wednesday it was considering a fifth hike in its fuel levy to cover a S$462 million shortfall caused by soaring oil prices.
While hedging and surcharges will partially offset rising costs, Qantas still faces a shortfall compared with last year and is "cautiously considering" a fifth surcharge, chief financial officer Peter Gregg said.
Any decision will have to take account of the demand impact, particularly in price-sensitive leisure markets, he said.
Qantas passengers now pay a S$15 fuel surcharge per sector.
Singapore Airlines (SIA), Asia's most profitable carrier, has already raised fuel surcharges several times since last year as fuel costs rose. Fuel bills account for a quarter of SIA's expenditures.
The carrier's first-quarter net profit to June fell almost eight percent year-on-year to S$142 million because of higher fuel expenses.
SIA passengers pay a levy of S$12-S$45 for a one-way trip.