Fuel surcharges meet mixed fortunes

Airlines have had mixed fortunes in their attempts to recover some of the losses from the surge in kerosene prices by adding a fuel surcharge to tickets.

European carriers have been at the forefront of the move, with British Airways and Air France-KLM announcing three fuel surcharges from summer through to October.

Low-cost carriers easyJet and Ryanair have failed to follow suit, and have not been shy in pointing this out. However, BA has not put the surcharge on routes where it competes against low-cost carriers, particularly easyJet.

"There are more pricing points than there were before," says Chris Tarry of CTAIRA. Analysts say it is a guessing game to estimate how much of the extra costs will be recovered, but it could be between one-third and half of the fuel price rises.

US carriers have had a tougher time making fuel surcharges stick. Various attempts since the spring failed when some carriers refused to impose the extra fee, fearing public opposition, or withdrew surcharges as they saw bookings fall. In October, a $10 price hike by American Airlines failed after a week.

However, by mid-month, some carriers, led by American, had raised a fuel surcharge on cargo and imposed one on international flights. American raised its overseas fares by $15-25 per leg to offset high prices for jet fuel. And a general fare hike, pushed by a decision by Southwest Airlines to raise most one-way fares by as little as $5, seemed to be sticking.

JP Morgan analyst Jamie Baker says: "For those who have routinely bemoaned the apparent lack of industry pricing power, it would appear that we may have reached an inflection point where legacy carriers are slowly regaining their pricing traction."

In the Asia-Pacific region, a number of carriers added surcharges in the early part of the summer season. Qantas added a second surcharge in October, with the carrier's chief financial officer, Peter Gregg, hitting back at comments from ABN Amro analyst Anthony Srom that the move was unnecessary because Qantas was fully hedged. "No amount of hedging could cover the recent price increases," Gregg says. Virgin Blue is also considering further fuel surcharges.

COLIN BAKER LONDON AND DAVID FIELD WASHINGTON

Source: Airline Business