Soaring fuel prices hit airlines

The world's top airlines warned yesterday that soaring fuel prices were hitting profits, prompting some to increase fares, and global leader American Airlines announced thousands of job cuts to counter higher costs.

Airline stocks fell sharply in Asia and Europe after stock in American's parent AMR Corp shed a quarter of their value as investors fretted over the cost of jet fuel, which is most airlines' single-biggest expense.

The airline industry is struggling to cope with oil prices that have surged 170 percent since the start of last year as economic uncertainty threatens growth.

"(The oil price) is going to actually send some (smaller) airlines into bankruptcy," said Nick van den Brul, analyst at Exane BNP. "The best position for an airline is to have a good hedge already in place ... a euro exposure to the dollar and also the ability to cut costs."

The cost of jet fuel traded in Singapore has risen by more than half this year alone and analysts expect more cost cutting, particularly among US carriers as an economic slowdown puts people off traveling.

American said it would begin charging passengers to check in their bags and will retire 75 aircraft from its ageing fleet.

Air France-KLM, the world's biggest airline by revenue, warned that soaring fuel prices would slash operating profits this year, knocking its shares down nearly 9 percent to two-month lows even as it reported higher 2007 operating profit.

Chief Executive Jean-Cyril Spinetta warned that Air France would have to brace for a 1.1 billion euro rise in fuel costs this year. He said the airline would implement a 150 million euro cost savings plan.

"The current year is set to be challenging, with the oil price and the global economy creating significant uncertainty," Spinetta said in a statement.

In Australia, Qantas Airways increased air fares for the second time in less than a month in response to record fuel prices. It will put up the cost of an international flight by 4 percent and domestic fares by about 3 percent.

Surcharge hike

Japan Airlines, Asia's biggest carrier by sales, said it needed to raise its fuel surcharge as it could no longer absorb cost increases on its own.

"We try to absorb it ourselves, but it's beyond our ability to absorb all of it, and we need to transfer (some) to our customers," said JAL President and Chief Executive Haruka Nishimatsu.

JAL shares fell 2 percent in a positive Tokyo market.

Agencies

(China Daily 05/23/2008 page17)