Qantas hikes fuel surcharges, says oil price a major threat

Monday, 25 April 2011 00:01 - - {{hitsCtrl.values.hits}}

(Reuters) – 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 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 percent 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 to 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.

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 U.S. airlines have been cutting back capacity. Other airlines like Singapore Airlines (SIAL.SI) 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 that traffic from Japan had dropped 25 percent since the disaster.