Airlines alarmed by rising fuel cost

By John Oyuke

Passengers might have to pay more to fly, as rising fuel prices and oil supply concerns force airlines to raise fares and surcharges.

The price of jet fuel in the local market has increased to an average of Sh68 from Sh62.4 per litre in January and operators expect it to rise further if the price of crude oil continues to escalate.

With fuel prices rising and carriers seeking to offset this with extra revenue, aviation analysts believe it is just a matter of time before travellers see a rise in air fares fuel surcharges and baggage fees.

Fly 540’s operations director, Nixon Ooko last week described the impact of the present rise in oil prices on airlines’ business as bad.

The airline for example, he said, is trying to balance ticket costs and competition in the market that has seen fares on the domestic routes drop.

Low pricing

"Fares are being pushed down by competition but we cannot cushion this low fare prices for long," Ooko is reported as telling a section of the media.

Fly 540 increased its fares on the Mombasa route by 15 per cent to Sh7, 540 early last month to maintain margins with the increased costs.

In the last quarter of 2010, airlines slashed their fares on the domestic routes to by 20 per cent in a bid to grow passenger numbers, with the Mombasa and Kisumu routes being the most affected.

Officials of global airlines are also of the view that rise in fuel prices would see fares start to inch upwards, as carriers increase fuel surcharge to cushion themselves from the rising oil prices.

For instance, British Airways Kenya Country Manager George Mawadri hinted yesterday that a number of carriers are monitoring the situation, to assess whether to make adjustments to fares or surcharges.

He said though the airline is not likely to change its current surcharge situation, its needs to be understood that high input prices for oil do ultimately find their way through to the consumer.

Mawadri said BA has an active fuel risk management programme, which it hopes combined with the synergy of the new International Airlines Group, would enable it deal with negative effects of soaring oil prices resulting from political instability in the Middle East.

"We are hedged at significant level for the year ahead. However, hedging can only mitigate some risk and not account for it completely, he said at a media workshop by the airline in Nairobi yesterday.

Return to profitability

Mawadri said the combined airline group figures "show a return to profitability, versus last year, with load factors reverting to more normal levels, without significant adverse impact on revenues.

"Excluding weather impact, we (group) do not see any material change to trend, our long haul business remains strong, but the short haul European market continues to be highly competitive," he said.

Concerns of fare hikes come when globally airlines have increased their fuel surcharges to cushion themselves from the escalating fuel prices.

According to the International Air Transport Association (IATA), the fare hike is expected to cost the airline industry $166 billion.

Due to this it has lowered the industry’s profitability for 2011 from $9.1 billion to $8.6 billion.

"The aviation industry is balancing on a "very thin tight-rope" and there is a "very little buffer for the industry to keep its balance as it absorbs shock, " the IATA Secretary General, Giovanni Bisignani noted in the organisation’s 2011 financial forecast.