July 2006 issue

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Fuel surcharges on the rise

In an echo of the situation at this time last year, many airlines worldwide are raising fuel surcharges in an effort to counter increasing costs associated with rocketing fuel prices.

As crude oil prices hit US$70 a barrel earlier this year many airlines announced increases to their fuel surcharges of around US$10, while Air New Zealand raised all domestic and outbound international airfares by 10 per cent from May 1 to cover operating costs associated with fuel price hikes.

In April, American Airlines increased fuel surcharges on most transatlantic and trans-Pacific flights, excluding to Japan, by US$10 on one-way flights and US$20 on round trips. Singapore Airlines also raised its surcharges to US$60 from US$50 on most routes, the fourth such rise in the last 12 months.

In Europe, surcharges have also been on the rise with Aer Lingus, British Airways, Air France and Lufthansa all announcing increased costs for travellers in the last few months. Aer Lingus has previously resisted adding fuel surcharges to any of its flights but the recent high fuel prices meant that surcharges were introduced on its long-haul flights to and from the USA and Middle East in April.

“Since 2005, the cost of fuel per passenger on long-haul routes has increased by over 86 per cent while at the same time average fares have fallen,” said Aer Lingus Chief Executive, Dermot Mannion. “In the light of the continuing increases in fuel, Aer Lingus can no longer fully absorb these costs.”

Wizz air gears up for competition

Chief Executive of Polish carrier Wizz Air, Jozsef Varadi, has predicted that the airline industry in Central Europe is set to undergo a process of consolidation in the next few years due to increased competition from new operators.

Varadi said that rapid growth in the industry since European Union accession has been unsustainable and many carriers have already had to withdraw from the regional market. “The industry is facing big consolidation… and from central Europe, only one [airline] will survive, the one with the lowest cost base and the one that becomes a European, not just a central European airline,” he said.

Wizz Air, which started operations in May 2004, has yet to make a profit but Varadi suggested that the carrier would become profitable this year after an expected 50 per cent rise in passenger traffic in 2006. The carrier’s main local competitors include SkyEurope, which has also yet to turn a profit, as well as Ryanair, which is a relative newcomer to the regional marketplace.

Despite industry predictions by the International Air Transport Association (Iata) that Poland would become one of the world’s fastest growing airline markets over the next four years, some carriers have been experiencing problems operating profitable services in central Europe. “Easyjet came in, probed the market, but its growth has been marginal and it realised that the market just doesn’t support high costs structures,” commented Varadi.

Travel industry to undergo radical change

The travel industry has been predicted to undergo revolutionary changes in the next decade or two, according to the keynote speaker at Pacific Asia Travel Association (Pata’s) annual conference in Pattaya, Thailand, earlier this year.

Ho Kwon Ping, Executive Chairman for the Banyan Tree Group, said that the rise of the middle classes in China, the aging ‘baby boomer’ generation born at the end of the Second World War, and the fact that travel aspirations are becoming almost a human need, will all have an influential role on the development of the industry in the future.

Kwon Ping added that the process would be accelerated by the advent of new technology – “both travel specific technology, such as the introduction of newer and cheaper aircraft and even seemingly unrelated technologies”, he said.

Travel Update

Australian airline Qantas has announced plans to drop its Queensland-based Australian Airlines brand and start an international expansion scheme for its discount carrier, Jetstar. Jetstar is due to fly to a number of new destinations in Asia including Vietnam and Thailand and the carrier added that 550 new jobs would be created by mid-2007 to handle its international operations.

British Airways has reduced its fares by up to 50 per cent to more than 65 European destinations. One-way fares will begin at UK£29 (US$55) and the carrier will effectively compete with low-cost carriers such as Easyjet and Ryanair. British Airways Commercial Director, Martin George, said, “This is not a short-term gimmick, but a long term commitment.”

China has opened new routes through its airspace that will cut flying time between Europe and its eastern seaboard in half. The move has affected 110 flights a week to and from China and will save airlines millions of dollars in fuel bills. The International Air Transport Association (Iata) has been negotiating with China for five years to increase the amount of airspace it makes available to civil aviation, previously only 30 per cent of the total. The more direct routing will eliminate 26,860 hours of flight time, 27 tonnes of fuel consumption, 84,000 tonnes of carbon dioxide emission and 340,000 kg of nitrogen oxide emission annually, according to Iata.

US carrier, Continental Airlines, has launched a daily non-stop service between its hub at Newark Liberty International Airport in the USA and Cologne and Bonn in Germany. This is the only non-stop transatlantic service between the USA and the two German cities. The carrier has also launched a daily non-stop service between Newark and Barcelona and Copenhagen bringing the number of transatlantic destinations served to 28.

Dubai is to invest US$33 billion in creating the world’s largest airport and city in Jebel Ali. The project, called Dubai World Central, will include a cargo city, residential and commercial quarters and a golf course as well as an international airport.

China is set to become the second largest travel and tourism economy within 10 years, according to a new report by the World Travel and Tourism Council (WTTC). The report recommends a number of ways for China to realise its potential in the travel and tourism sector, including making English language learning a requirement for all travel and tourism programmes and new hire employees.

Thai Airways International has reported an annual 78 per cent rise in its second quarter net profit for this year as higher passenger traffic and a foreign exchange gain outweighed surging fuel costs. The airline said that passenger load had increased to 76.7 per cent in its March quarter from 70.6 per cent in 2005 when demand was low due to the Indian Ocean Tsunami.

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