Surging fuel prices put squeeze on airline profitability


As the number of international passengers carried by Asia-Pacific airlines continue to grow – by a healthy eight per cent from January to August this year – significant increases in fuel prices are eroding margins and profitability.

“It’s been very difficult to pass on the fuel cost impact,” said Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA), at the 62nd Assembly of Presidents in Jeju last week. And the fuel cost that can be passed on to airfares also varies dramatically by markets, he pointed out.

Air fares are not keeping pace with fuel prices in APAC region

Overall, carriers in the Asia-Pacific region have seen margins decrease and profits weaken, despite the robust passenger traffic numbers amid rising fuel prices.

IATA’s jet fuel monitor showed that jet fuel prices in Asia and Oceania as of October 12 was almost four per cent higher versus a month ago, and about 41 per cent higher from a year ago.

While India may be the fastest-growing market with a double-digit growth in travel demand, Herdman said that “Indian carriers are not profiting right now”.

Philippine Airlines, also feeling the same pressures from higher fuel costs, has recently added fuel surcharges to airfares, admitted its president and chief operating officer Jaime Bautista.

Meanwhile, some markets are seeing cracks in general consumer confidence, brought about by currency weakness, politics and macroeconomic policy.

Nevertheless, Herdman projects clear growth prospects for Asia-Pacific airlines next year, as the global economy is set to grow by 3.7 per cent, demand for business and leisure travel likely to be sustained, and Asia-Pacific airlines continue their investment in next-generation aircraft, latest technology and other customer service initiatives.

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