Sydney: Australia’s Qantas Airways has raised fuel surcharges on international routes for the third time this year in response to surging oil prices, adding A$100 ($105) to the cost of one-way fares from Australia to Europe and North America.
The increases were accompanied by fare rises and higher fuel surcharges on domestic routes and followed recently announced plans to scale back some flights and cut management jobs to limit the financial damage.
Qantas chief executive Alan Joyce said the cost of jet fuel was the single biggest threat to the aviation industry since the global credit crisis delivered the hardest blow to the industry in modern history as business travel dried up.
“Some ... have accused us of crying wolf. The truth is the wolf is not just inside the door, it’s gnawing at our leg. Jet fuel prices have increased by more than 40% since November 2010,” Joyce told a business luncheon in Sydney.
Qantas is not only struggling with rising jet fuel prices; its business has also been disrupted by natural disasters in key markets this year, including the Japan earthquake and tsunami, floods in Australia and an earthquake in New Zealand. Some of its workers are also threatening industrial action over pay.
“At this stage Qantas probably have no other option but to raise fares because they are in the middle of a stoush with the unions. There is going to come a point when it really starts to impact demand because consumer sentiment is quite fragile as it is,” said Brian Han, portfolio manager at Constellation Capital Management, which owns Qantas shares.
Qantas shares traded 0.5% lower at A$2.11 in mid-afternoon trade, outperforming a 1.3% fall for the broader market.
Profit forecasts unchanged
Joyce said Qantas would spend A$3.7 billion on fuel in 2010/11 (July/June), noting that additional fuel costs would not be recovered by the airline even after surcharges, hedging and fare hikes.
“If these (fuel) prices are sustained, next year’s fuel bill will be hundreds of millions of dollars more,” he said.
Qantas said its fuel bill for the second half of 2010/11 alone would be A$2 billion.
The fuel surcharge hike is the airline’s third such move in calendar 2011. The new surcharge on a one-way flight from Australia to Europe will be A$290, up A$100 from A$190 previously. Flights to North America from Australia will now incur a charge of A$250, also up by A$100 each way.
The airline has also estimated that the recent disasters will hurt its earnings by A$140 million.
Many carriers have been steadily raising fares this year as $100-a-barrel oil threatens profits just as airlines are recovering from the global credit crisis.
Major US airlines have been cutting back capacity. Other airlines like Singapore Airlines and Cathay Pacific have also warned higher fuel costs may impact profits.
Qantas said it had no plans to cancel aircraft orders and was not changing its profit forecasts. It also said on Tuesday that traffic from Japan had dropped 25% since the disaster.
Qantas, which faces the threat of strike action by some workers over pay and conditions, said it had reached an agreement with the Australian Services Union but said some demands by other unions were extreme and unacceptable.
“But these demands being put forward by the union leadership are so extreme, and so damaging to Qantas, that I cannot in all conscience accept them,” Joyce said.