January 27, 2015 / 1:44 AM / in 4 years

Qantas lifts base ticket prices to offset dropping of fuel surcharge

SYDNEY (Reuters) - Qantas Airways Ltd (QAN.AX) said it would be raising base ticket prices to compensate for the axing of a separate fuel surcharge, pushing back against calls for the airline industry to lower fares in the wake of falling oil prices.

A passenger walks past a Qantas Airways emblem at the Sydney International Airport terminal July 18, 2014. REUTERS/David Gray

The Australian carrier, which is recovering from years of sharp earnings declines, said a more than halving in oil prices over the past six months was not enough to offset strong competition in international fares.

Other major airlines have also argued that base ticket prices are a function of demand, rather than costs, but Qantas appears to be the first to use the argument to defend an absorption of the fuel surcharge.

“If you look at the trends in global aviation over the past decade, costs and competition have been increasing while fares and airline margins have been falling,” Qantas Chief Executive Alan Joyce said in a statement.

He added that passenger yields remained significantly below levels seen before the global financial crisis and that lower oil prices would leave airlines in a better position to invest in new aircraft, lounges and routes.

Oil is now 60 percent cheaper than it was at its June peak, fuelling an anticipated near $5 billion increase in global industry profits this year to $25 billion.

But the International Air Transport Association estimates that the net profit airlines make per passenger this year will rise by just $1 compared with last year, from $6 to $7.

Aviation experts said last week that airlines were unlikely to cut fares following the dramatic fall in oil prices, despite calls from politicians and consumer groups to pass on the savings to customers.

Emirates [EMIRA.UL] said last week it was considering whether to cut the surcharge, while Qatar Airways said it would reduce the charge, without saying when or by how much.

AirAsia Bhd (AIRA.KL) said on Monday it was removing fuel surcharges in all its regional affiliates and long-haul arm AirAsia X Bhd (AIRX.KL). Qantas arch rival Virgin Australia Holdings Ltd (VAH.AX) removed its last remaining fuel surcharges, on its U.S. route, last week.

Analysts say removing the term “fuel surcharge” from bookings pages is a significant marketing move.

($1 = 1.2626 Australian dollars)

Editing by Stephen Coates and Edwina Gibbs

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