SIA fuel surcharges up, but MAS, AirAsia and Firefly yet to decide on any hike

[alberttky 0]

PETALING JAYA: Local airlines may increase air fares or fuel surcharges should their regional peers do so as jet fuel prices continue to trend upwards.

 

As crude oil prices continued to trade above US$90 per barrel, aviation jet fuel price for this week was quoted at US$106.3 per barrel, based on the International Air Transport Association's website.

 

Avenues for airlines to contend with rising oil prices include increasing airfare, re-imposing or increasing fuel surcharge.

 

AirAsia X chief executive officer Azran Osman-Rani said the long-haul budget carrier would raise airfares if competing airlines operating similar AirAsia X routes did so.

 

“We will have to see how far (up) oil price goes, if like 2008 levels (which peaked at US$146), before we can make that decision,” Azran told StarBiz yesterday.

 

He added that AirAsia X did not have a targeted price increase and it was important for it to maintain its price differentiation in terms of keeping fares lower, compared with other airlines competing on similar routes.

 

“Our (A330) aircraft also has more seats, which means that the cost of fuel per passenger is lower than other aircraft,” he said.

 

Malaysia Airlines (MAS) managing director and chief executive officer Tengku Datuk Seri Azmil Zahruddin said fuel surcharge for its tickets was under constant review.

 

“In light of sustained increase of jet fuel prices in recent months, MAS is monitoring the situation closely. Any increase in fuel surcharge would be benchmarked against our competitors to ensure our fares remain competitive,” he told StarBiz.

 

An aviation analyst attached to a foreign research house said MAS might at increasing fuel surcharge, following Singapore Airline's (SIA) decision to do so last month.

 

SIA said in December that it was increasing its fuel surcharge, its first hike since June 2008, due to sustained escalation in the price of jet fuel in recent months.

 

Based on the airline's website, both SIA and its unit, SilkAir, would see fuel surcharge increase between US$3 and US$25 per sector, depending on the distance and class of travel.

 

AirAsia group chief executive officer Datuk Seri Tony Fernandes said that the airline was not looking to impose a fuel surcharge or increase air fares at the moment.

 

“We will continue to monitor oil prices and make a decision when the need arises,” he said.

 

Meanwhile, a local aviation analyst said low-cost carriers were unlikely to impose a fuel surcharge unless oil prices exceeded US$100 per barrel.

 

“There has been no indication by the (local) airlines that they are putting on a fuel surcharge. I don't see oil prices exceeding US$100 per barrel as the current rise in oil price is not so much demand driven but more a flow of liquidity due to the quantitative easing measures, where money is flowing into commodities,” he said.

 

The analyst added that such a concern on fuel surcharge would only arise should oil prices exceed US$100 per barrel for two to three continuous weeks.

 

The Associated Press reported on Tuesday that some US airlines had started to raise air fares with a Southwest Airlines spokesman attributing the air fare increase to contend with rising fuel costs.

 

The news report also said the increase on many US domestic routes ranged from US$4 to US$10 per round-trip ticket, depending on the length of the flight.

 

Low-cost carrier AirAsia scrapped its fuel surcharge in November 2008.The airline tackles fuel price hike with aggressive marketing and the strengthening of its ancillary business instead of relying on fuel surcharge to offset rising fuel cost.

 

AirAsia group chief executive officer Datuk Seri Tony Fernandes said that the airline was not looking to impose a fuel surcharge or increase air fares at the moment.

 

“We will continue to monitor oil prices and make a decision when the need arises,” he said.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/1/14/business/7793606&sec=business

[flee 5]

PETALING JAYA: The second round of fuel surcharges imposed by Singapore Airlines (SIA) and its unit SilkAir in just over a month will trigger an industry-wide reaction, especially since jet fuel prices have breached the US$110 per barrel mark.

 

Qantas was first to respond to say that a fuel surcharge imposition was imminent even though Australian carriers have some protection from the high value of the Aussie dollar against the US currency, in which oil is traded.

 

However, carriers in Malaysia have yet to decide on any fuel surcharges even though AirAsia group chief executive officer Datuk Seri Tony Fernandes said that “we won't burden consumers. We have learnt from the last fuel crisis.''

 

He added that “we are not affected by the higher jet fuel prices. The airline and its associates (Thai AirAsia and Indo AirAsia) are doing very well and there is plenty of ancillary income'' to offset any rise in jet fuel cost.

 

An analyst with a local brokerage concurred with Fernandes and added that the impact of the jet fuel hike for now on AirAsia's bottomline would be minimal. However, if jet fuel prices were to rise further, all airlines would be impacted.

 

The International Air Transport Association (IATA) is bullish about passenger traffic growth this year but has also warned that due to higher fuel costs, a fall in profits for the airlines from US$15.1bil in 2010 to US$9.1bil can be expected this year.

 

Malaysia Airlines (MAS) could not comment whether it would follow SIA's footsteps to impose fuel surcharges as its senior management team was involved in an in-house management programme. Nor could its subsidiary Firefly be reached for comment.

 

However, MAS managing director Tengku Datuk Seri Azmil Zahruddin did say earlier that the airline would monitor the situation closely.

 

The local carriers are laggards; they will not impose fuel surcharges until other players such as Cathay Pacific, Garuda and Thai Airways do so, according to an analyst.

 

Whether it is now or later, any fuel surcharge imposition “would not be good for travellers' wallets but airlines have made it a habit of passing part of their fuel cost to travellers in the form of fuel surcharges or higher ticket fares,'' said a source.

 

IATA concluded in its January CFO survey that unit costs would increase significantly this year for airlines. For AirAsia, every US$1 rise in jet fuel meant its cost rose by RM17.8mil whereas for MAS it was a RM42.3mil rise given its wider network and bigger cost base, said an analyst.

 

“The breakeven point for the airlines is when jet fuel prices reach US$160 and US$130 a barrel respectively for AirAsia and MAS. Only then would they have to worry about profitability,'' he said.

 

He was of the view that the current rise in jet fuel prices was temporary and it should retrace. His prediction was that jet fuel would average US$90 a barrel this year while IATA's forecast was US$84 a barrel. IATA added that 30% of the industry's fuel needs were hedged this year but could not give the average hedge price.

 

MAS had 30% of its fuel hedged at US$100 a barrel this year and with jet fuel at US$110 a barrel, it was already out of the money, said an analyst.

 

AirAsia has not declared how much of its fuel is hedged this year, but last year about 15% of its total group fuel consumption was hedged. The airline had in 2008 abandoned its hedging policy, opting for spot buying to meet its needs after its hedges had turned sour and it was forced to make huge provisions for them.

 

Despite the rising jet fuel prices, analysts still have a “buy'' call on both stocks. For the full-year 2010, an analyst expects AirAsia group to report RM924mil in net profit and RM1.06bil for the current year. For MAS, he reckons it would be RM700mil net profit for 2011 and this is on assumption that jet fuel prices will be at the US$110 a barrel level.

 

On Friday, SIA and SilkAir said they would increase fuel surcharges for tickets issued on or after Jan 27 due to the recent sharp rise in the price of jet fuel. It said the price of jet fuel was above US$110 a barrel. The rise is between US$3 and US$27 per sector. This is its second increase in fuel surcharges since Dec 2, when jet fuel prices were above US$95 per barrel. Before December, the last increase was in June 2008. There were three fuel surcharge cuts in September and November 2008 and in February 2009, SIA said.

 

Carriers in the United States such as Delta, United, Continental, and US Airways have increased their fares to match rising costs and two Indian airlines, Kingfisher and Jet Airways, raised their fuel surcharges by up to US$4 per ticket on Jan 1.

 

source: http://biz.thestar.com.my/news/story.asp?file=/2011/1/25/business/7863358&sec=business

[JuliusWong 0]

PETALING JAYA: The second round of fuel surcharges imposed by Singapore Airlines (SIA) and its unit SilkAir in just over a month will trigger an industry-wide reaction, especially since jet fuel prices have breached the US$110 per barrel mark.

 

Qantas was first to respond to say that a fuel surcharge imposition was imminent even though Australian carriers have some protection from the high value of the Aussie dollar against the US currency, in which oil is traded.

 

However, carriers in Malaysia have yet to decide on any fuel surcharges even though AirAsia group chief executive officer Datuk Seri Tony Fernandes said that “we won't burden consumers. We have learnt from the last fuel crisis.''

 

He added that “we are not affected by the higher jet fuel prices. The airline and its associates (Thai AirAsia and Indo AirAsia) are doing very well and there is plenty of ancillary income'' to offset any rise in jet fuel cost.

 

An analyst with a local brokerage concurred with Fernandes and added that the impact of the jet fuel hike for now on AirAsia's bottomline would be minimal. However, if jet fuel prices were to rise further, all airlines would be impacted.

 

The International Air Transport Association (IATA) is bullish about passenger traffic growth this year but has also warned that due to higher fuel costs, a fall in profits for the airlines from US$15.1bil in 2010 to US$9.1bil can be expected this year.

 

Malaysia Airlines (MAS) could not comment whether it would follow SIA's footsteps to impose fuel surcharges as its senior management team was involved in an in-house management programme. Nor could its subsidiary Firefly be reached for comment.

 

However, MAS managing director Tengku Datuk Seri Azmil Zahruddin did say earlier that the airline would monitor the situation closely.

 

The local carriers are laggards; they will not impose fuel surcharges until other players such as Cathay Pacific, Garuda and Thai Airways do so, according to an analyst.

 

Whether it is now or later, any fuel surcharge imposition “would not be good for travellers' wallets but airlines have made it a habit of passing part of their fuel cost to travellers in the form of fuel surcharges or higher ticket fares,'' said a source.

 

IATA concluded in its January CFO survey that unit costs would increase significantly this year for airlines. For AirAsia, every US$1 rise in jet fuel meant its cost rose by RM17.8mil whereas for MAS it was a RM42.3mil rise given its wider network and bigger cost base, said an analyst.

 

“The breakeven point for the airlines is when jet fuel prices reach US$160 and US$130 a barrel respectively for AirAsia and MAS. Only then would they have to worry about profitability,'' he said.

 

He was of the view that the current rise in jet fuel prices was temporary and it should retrace. His prediction was that jet fuel would average US$90 a barrel this year while IATA's forecast was US$84 a barrel. IATA added that 30% of the industry's fuel needs were hedged this year but could not give the average hedge price.

 

MAS had 30% of its fuel hedged at US$100 a barrel this year and with jet fuel at US$110 a barrel, it was already out of the money, said an analyst.

 

AirAsia has not declared how much of its fuel is hedged this year, but last year about 15% of its total group fuel consumption was hedged. The airline had in 2008 abandoned its hedging policy, opting for spot buying to meet its needs after its hedges had turned sour and it was forced to make huge provisions for them.

 

Despite the rising jet fuel prices, analysts still have a “buy'' call on both stocks. For the full-year 2010, an analyst expects AirAsia group to report RM924mil in net profit and RM1.06bil for the current year. For MAS, he reckons it would be RM700mil net profit for 2011 and this is on assumption that jet fuel prices will be at the US$110 a barrel level.

 

On Friday, SIA and SilkAir said they would increase fuel surcharges for tickets issued on or after Jan 27 due to the recent sharp rise in the price of jet fuel. It said the price of jet fuel was above US$110 a barrel. The rise is between US$3 and US$27 per sector. This is its second increase in fuel surcharges since Dec 2, when jet fuel prices were above US$95 per barrel. Before December, the last increase was in June 2008. There were three fuel surcharge cuts in September and November 2008 and in February 2009, SIA said.

 

Carriers in the United States such as Delta, United, Continental, and US Airways have increased their fares to match rising costs and two Indian airlines, Kingfisher and Jet Airways, raised their fuel surcharges by up to US$4 per ticket on Jan 1.

 

source: http://biz.thestar.com.my/news/story.asp?file=/2011/1/25/business/7863358&sec=business

 

Soon.....just a matter of time. Hopefully it won't happened.

[Josh T 0]

Soon.....just a matter of time. Hopefully it won't happened.

Hopefully, I can get my flights at the end of the year sorted before the fuel surcharge increases.

[Gavin Andrew David 6]

They could however turn this around , and if they don't introduce the surcharge , it would make a slight impact in the quality of service perhaps ?

 

Maybe we'll see the reintroduction of the famous ol' snackbox

[BC Tam 2]

Maybe we'll see the reintroduction of the famous ol' snackbox

Hopefully they have learnt from earlier episode !

[JuliusWong 0]

Latest news: AirAsia says no fuel surcharge before oil hits $100

http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4630627

[N Azman 0]

I've always found LCC's claim that they're 'not hurt' by increasing fuel price a bunch of bollocks. Worse still, journos completely eat up this claim and are publishing this sh*t. One should be able to tell real news from share-price-tickling-propaganda.

 

Reason being, LCCs fuel portion of total cost easily weigh up to 60% (some claim up to 70%), while legacy carriers typically have fuel cost ratio at 40%. So you do the math. They all burn the same fuel.

 

Hence, in quantum, their costs may not rise to as high as the legacies. But they certainly suffer more in terms of CASK. Now they don't have the legacies RASK so in retrospect they should be the first ones to increase fare.

 

Or....start selling 2012 seats lah.

[Sri Ramani K. 0]

Or....start selling 2012 seats lah.

 

or hold back the airport tax that should have been rightfully paid and keep them in some investment scheme and make some 1-2% interest out of it first, before begging the airport operator to reduce and get a 25% discount.

 

[N Azman 0]

thats brilliant! let me suggest to...oh wait, it was done before.

 

but i prefer act of quietly inserting a convenience fee. it sounds so convenient. it must've been the most convenient fee ive paid and i certainly don't have any grouse paying it again. it makes me feel all warm and fuzzy inside.

[BC Tam 2]

..... keep them in some investment scheme and make some 1-2% interest out of it first, .....

If that rate is on annual basis, then your investment advisor is not quite worth his/her salt

The bit about witholding tax paid and 25% discount rate - top notch input from some bean counting legal team I suppose

Wonder if they categorize this under 'ancilliary income' ?

[Mohd Azizul Ramli 2]

Has MH impose fuel surcharge already? I made a few dummy bookings, a KUL-BKI one way ticket has an extra RM 6 of Admin fee, Fuel (where applicable) and other surcharges on top of the RM 9 airport tax. Is this the purported fuel surcharge?

[BC Tam 2]

I think all those involved in formulating these online, first come first served, bargain of a lifetime offers are now more than well versed (I would say, mastered in fact) in the art of psychological warfare (deceit if you're mean enough to call it that !)

For the average joe public, how many are aware how much is airport tax supposed to be in Malaysia, let alone say some foreign airport ?

And the few extra ringgit here and there for all those extras, it will cost even more if you decide to add on later one

And if you dilly dally and don't pay up soon, someone will grab those amazingly priced seats before you (eh, what is the 'normal' price ?) - if like that banyak rugi lah !

 

Yup, those were my sentiments this morning when I voluntarily instructed my credit card purveyor to pay just such an airline, three times over in fact I hope payment for the first two (unsuccessful) attempts were not effected, otherwise my next credit card statement will not be decent !

[H C Chai 4]

I guess most people won't notice the rise or fall of fuel surcharge when buying a revenue ticket. However, it does make a difference when booking a redemption ticket.

 

Interestingly I made a redemption booking with Thai Airways earlier this month and I noticed that their fuel surcharges have dropped. YQ for ZRH - BKK - KTM - BKK - LHR has become US$140 cheaper! I don't know why but I am definitely not complaining...

[Mohd Azizul Ramli 2]

On the other hand, while changing my redemption booking with SQ recently, the fuel surcharges have gone up by about MYR 100. The surcharges that I paid before was MYR 492. When I changed the date of the redemption booking, the system shown a surcharge of MYR 598 or something like that, but I was not required to pay the difference. I am definitely not complaining too.

[flee 5]

KUALA LUMPUR, March 3 (Bernama) -- Malaysia's community airline, Firefly, has no plan to implement fuel surcharge at this moment although the crude oil price has surged to US$116.81 (US$1=RM3.00) per barrel.

 

Its managing director, Datuk Eddy Leong, said the airline faced the risk of fuel volatility just like other airlines worldwide and subscribe to Malaysia Airlines group's overall hedging policy.

 

"However we will continue to monitor the situation closely," he said in an e-mail reply to Bernama's query on the impact of fuel price increase.

 

Meanwhile, Firefly aimed to increase its sales at this year's Malaysian Association of Tour and Travel Agents (Matta) Fair from March 11-13, 2011, by two-fold this year.

 

In a statement Thursday, its head of Firefly Holiday, Ng Pei Fern, said the airline would offer attractive holiday package deals to take into account their needs and affordability.

 

"We are offering complementary extras such as meals, transfers and message or spa sessions. The customers can enjoy an extension of varieties in terms of destination and value to choose from," Ng said.

[Mohd Azizul Ramli 2]

SQ increased their fuel surcharge again, 2nd time in 2011.

 

By Agence France-Presse, Updated: 3/9/2011

 

SIA ups fuel surcharges again on escalating jet fuel costs

http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4699126

 

State carrier Singapore Airlines (SIA) Wednesday said it was hiking fuel surcharges for the second time this year due to skyrocketing jet fuel costs.

 

The surcharge increases of "between $2 and $26" depending on distance and class of travel, will be levied from next Thursday on SIA flights as well as regional wing SilkAir's, the airline said in a press statement.

 

"Singapore Airlines will increase its fuel surcharge for tickets issued on or after 17 March 2011, as a result of the continued escalation in the price of jet fuel," it stated.

 

"The price of jet fuel is now above $130 per barrel, which is the highest in two years."

 

SIA's latest surcharge hike was its second this year after it raised rates in January due to escalating oil prices, and its third since December 2, 2010 when jet fuel surged above $95 per barrel.

 

Prior to December, the last increase was in June 2008. There were three fuel surcharge cuts -- in September and November 2008 and in February 2009.

 

"The adjustments will offer only partial relief from the higher operating costs arising from increases in the price of jet fuel," the airline said.

 

"Singapore Airlines will continue to closely monitor the price of fuel and keep surcharges under constant review."

 

Standard & Poor's Equity Research Aviation analyst Shukor Yusof said SIA had little option other than to raise fuel surcharges to offset the effect of escalating jet fuel costs.

 

"The continual rise in oil prices are now at a stage where they are threatening the financial health of most airlines if not all. If you look at jet fuel prices, it has exceeded a level that most airlines can contain," he told AFP.

 

"So the implication pretty much is that in order to remain profitable and in order to be solvent, I think airlines have very little choice other than to impose fuel surcharges."

 

Shukor added that SIA would be hit especially hard should jet fuel prices continue to rise due to its fleet of large planes, which consume more fuel.

 

"If it goes on climbing higher and higher, than its going to be tough for airlines, especially SIA which runs a fleet of wide-body aircraft," he said.

 

SIA's operating fleet as of December 31, 2010 comprised 109 passenger aircraft, including 11 A380 superjumbos, its third-quarter earnings report released in January stated.

 

The airline had in the report said rising jet fuel costs, along with US, European Union and South Korean antitrust fines were a major factor dragging down its third-quarter earnings.

 

Jet fuel prices had also been the company's biggest expense during the October-December quarter, it said.

 

SIA's net profit in the period fell 29 percent to Sg$288.3 million ($225.30 million), down from Sg$403.7 million a year earlier.

 

Crude prices were mixed in late Asian trade Monday as traders tracked the supply situation amid ongoing unrest in Libya and awaited energy inventory data in the US.

 

New York's main contract, light sweet crude for April delivery, fell 19 cents to $104.83 per barrel while Brent North Sea crude for delivery in April gained 59 cents to $113.65.

[Mohd Azizul Ramli 2]

MH reveals its strategy to tackle fuel cost in 2011.

 

Friday March 11, 2011

 

MAS hedge down on unclear economy

http://biz.thestar.com.my/news/story.asp?file=/2011/3/11/business/8222990&sec=business

 

By JEEVA ARULAMPALAM

jeeva@thestar.com.my

 

Higher entry cost also reason for cut in fuel hedge to 25%

 

PETALING JAYA: Uncertainty in the economic recovery and higher fuel hedging entry cost are some of the reasons why Malaysia Airlines (MAS) drastically reduced its fuel hedging levels this year to 25% from 60% last year.

 

“The hedging range in the airline industry has been lower since 2008 due to the uncertainty in economic recovery, fuel price volatility and the higher fuel hedging entry cost,” MAS chief financial officer Mohd Azha Abdul Jalil told StarBiz in an email response.

 

He said the national carrier continued to practice competitive hedging with 25% of its fuel requirements this year hedged at US$88 a barrel (West Texas Intermediate and cash basis).

 

“This is in line with our peers. With travellers becoming more accustomed to fuel surcharge, it is now a common instrument in the industry to partially manage the rising fuel costs,” he said.

 

MAS planes are parked at the tarmac of the KL International Airport. The national carrier’s fuel hedge levels are said to be in line with its benchmarked peers, with current hedge levels ranging from 17% to 35%. — AFP

 

MAS' fuel hedge levels are said to be in line with its benchmarked peers, with current hedge levels ranging from 17% to 35%.

 

MAS entered into various fuel hedging contracts for three years from 2009 to 2011 with many contracts priced around US$100 a barrel, after oil prices skyrocketed to a high of US$147 per barrel in mid-2008. However, spot oil prices began tumbling drastically in late 2008 and early 2009, causing MAS to make “paper losses” of some RM3.8bil as at Jan 1, 2009 for its three-year contracts collectively.

 

Effectively, the actual loss experienced by the airline will only be realised when these various contracts expire and at the price of oil then.

 

Since oil prices have been on an uptrend after collapsing in late 2008, MAS has narrowed its paper losses for its existing fuel contracts.

 

Based on its financial statements to Bursa Malaysia, the airline's gain on fuel hedging contracts for financial years ended 2009 and 2010 amounted to RM1.15bil and RM194.6mil respectively. This is representative of contracts that had expired and the fair value of existing contracts, as required under financial reporting standard 139.

 

The airline has been pro-actively restructuring its 2011 fuel hedges since last year to bring down the hedge levels (from 40% to 25%) as well as the hedging price (from US$100 to US$88 a barrel).

 

Now that spot oil prices have hit new highs in over two years and driven jet fuel prices to US$134.7 per barrel due to political unrest in Libya, analysts said that MAS would definitely benefit from higher hedging levels.

 

“No doubt, MAS would gain from higher levels of fuel hedging in the current environment but it is difficult for them to gauge how much to hedge and at what price, unless MAS has a strong treasury team to do this,” said an analyst with a foreign research house.

 

A local bank-backed analyst said that it was difficult to predict the potential gains from the airline's fuel hedges against the higher fuel costs it would pay at pump prices.

 

However, analysts said that a lower hedging level would work best for MAS now so that it was not over-hedged and considering the unpredictability of oil price volatility.

 

Reuters reported in January that top global airlines such as Cathay Pacific, Singapore Airlines and Qantas Airways are staying away from further hedging jet fuel purchases as these airlines have withstood prices far higher than the current levels and as the industry has not quickly forgotten Japan Airlines' bankruptcy, triggered by wrong bets on crude prices.

 

Meanwhile, budget carrier AirAsia Bhd has hedged some 21% for up to the second quarter of this year at an average US$92.31 per barrel (fixed swap West Texas Intermediate).

 

“While the budget carrier has hedged up to April, it has more room for flexibility in its hedging policy as higher fuel costs can be offset by its growing ancillary income,” said a foreign research analyst. “For example, the sale of insurance policies would be a clean profit for the airline if no claims are made.”

 

AirAsia has said that every RM1 per passenger spent provides about US$1 per barrel of buffer.