Rising crude oil prices and a weaker ringgit will make fuel purchases more expensive for local carriers

By KEVIN WONG / Pic By MUHD AMIN NAHARUL

LOCAL airlines are expected to impose higher fuel surcharges as crude oil prices continue to rise above the US$85 (RM352.52) per barrel mark, hurting carriers’ bottom line despite global air travellers reaching a record high.

Airlines around the globe had previously imposed fuel surcharges when fuel prices skyrocketed to US$140 a barrel, but had retracted the levies after crude plunged to below US$30 per barrel.

Fuel cost, which is a substantial cost factor to airlines where in some cases comprises 50% of operating expenses, had risen as global oil prices rose to a 48-month high.

Analysts are predicting that oil prices can rise to US$100 a barrel, triggered by US sanction on Iran, which kicks in next month. The sanction on OPEC’s third-largest oil producer would force the world’s biggest fuel guzzlers to seek alternatives sources, subsequently boosting prices as producers had capped production after the recent oil price slump.

The weaker ringgit will also make jet fuel purchases more expensive for local carriers.

Sunway University Business School Economics professor Dr Yeah Kim Leng said airlines would find it difficult not to increase surcharges without affecting their operating margins.

“Unless they can enhance cost efficiency or load factor to offset higher fuel prices, it will be difficult for airlines to avoid a margin squeeze if they do not pass through the higher fuel costs.

“Given the intense competition in the airline industry, (companies with) a less fuel efficient fleet will be under pressure to raise airfares, which in turn would result in the airlines facing the issue of a decline in passenger volume,” he told The Malaysian Reserve recently.

Yeah said the move, when it happens, would not have a huge impact on frequent travellers who have no choice but to pay the additional cost. But the occasional-traveller segment would be impacted.

“Business travellers will likely be less price sensitive, but tourists and budget travellers will be affected the most if the fare hikes are substantial,” he said.

Malaysia Airlines Bhd (MAB) had reinstated a fuel surcharge on its ticket price last month following the constant increase in oil prices.

In a statement, the national carrier noted that it has reintroduced a fuel surcharge for all flights originating from Malaysia from Sept 18 onwards.

Economy class passengers who are travelling within Malaysia and Asean are levied an extra RM4 per trip, while an additional RM8 is charged for those flying to the Middle East and South Asia.

Those travelling to North Asia, including China, Australia, New Zealand and Europe, are also subject to a surcharge of between RM12 and RM16.

For business class passengers, the surcharge for domestic and Asean routes is RM8, while long-haul destinations saw an additional fee of between RM12 and RM24.

Prior to this, MAB had re-implemented fuel surcharge for all its inbound flights ranging from US$1 to US$12.

Passengers flying from Australia, New Zealand and Europe are levied at US$8 for economy class and US$12 for business and first class.

MAB’s sister company FlyFirefly Sdn Bhd noted that the airline would not impose a fuel surcharge at the moment.

It was reported that Hong Kong’s Cathay Pacific Airways and its sister carrier, Cathay Dragon, had also imposed a fuel surcharge of HK$652 (RM345) on their air tickets last month due to the rising cost of jet fuel.