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.