Airline fuel surcharge to have minimal impact on passenger traffic

This is as the demand and urge to travel is very strong right now due to easing of restrictions

by S BIRRUNTHA / pic by TMR FILE

THE rising global fuel price has prompted several airlines to impose fuel surcharge on passengers, but it is expected to have a minimal impact on passenger traffic.

Pangolin Investment Management analyst and director Mohshin Aziz said people will stomach the fuel surcharge as the demand and urge to travel is very strong right now.

Moreover, he said people will perceive the overall cost of travel to be lower with the removal of costly polymerase chain reaction Covid-19 tests.

“At some point of time, high cost of travel is not conducive to passenger traffic numbers.

“However, we believe that this effect will fade away eventually as people have shown keen interest to travel this year after easing of lockdown restrictions,” he told The Malaysian Reserve (TMR) recently.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff opined that it is inevitable that airlines will start imposing fuel surcharges due to volatile oil prices caused by the current Russia-Ukraine crisis.

He noted that even if the airlines can keep the fuel costs by hedging, the oil price volatility will still cause uncertainties in pricing their fare and surcharge, which is one of the options for them to lessen the impact on operating costs.

“I think there will be minimal impact on the passengers’ traffic once borders are opened since travellers can choose airlines and top foreign visitors are Singaporeans who can simply travel here via land route.

“In 2019, we received 10 million visits from Singapore and the majority of them took the land route,” he told TMR.

Meanwhile, aviation consultancy Endau Analytics founder and analyst Shukor Yusof said fuel surcharges are included in airfares when oil prices cross a certain threshold, putting huge pressure on airlines’ operating costs. While he concurred that fuel surcharges will not have a great impact in terms of passenger traffic, it may cause some people to think twice before travelling.

However, Shukor warned that if the fuel surcharge is prolonged, or worsened, it will definitely deter people from flying at some point.

He also noted that holidays will be coming at a premium if oil prices continue to increase. Oil prices have recently surged to its highest point since 2008 after Russia’s invasion of Ukraine.

Experts have claimed that potential fuel charges could raise airfare costs by at least 15%, as the spike in fuel prices comes just as the airline industry is recovering from the Covid-19 pandemic.

Some Asian and Middle Eastern carriers have already implemented fuel charges.

On March 10, Malaysia Airlines Bhd announced that it will impose a fuel surcharge on passengers and air cargo in selected markets from March 23 after global fuel prices escalated.

The airline noted that it is proactively managing its capacity to mitigate unprofitable routes due to rising fuel costs.

AirAsia Bhd also announced that it is bringing back fuel surcharges starting from March 8 to all flights to offset escalating jet fuel prices that it said had exceeded US$120 (RM505.20) per barrel.

Its CEO Riad Asmat said the airline had not been charging fuel surcharges since it was abolished in 2015 when global fuel prices were as low as US$48 per barrel.

He added that it had been absorbing the oil price increases over the years while other carriers adjusted fares and increased fuel and admin charges to counter rising operating costs as early as 2018.

“Unfortunately, the current situation where the oil price has shot up more than 160% from what it was in 2015 has made it no longer sustainable.

“Airlines all over the world are affected by the rising oil price and the continuous upward spiral caused by the situation in Eastern Europe and other external factors have made it imperative for us to reintroduce the fuel surcharge despite our best efforts to resist it for as long as we could,” he noted in a recent statement.

The fuel surcharge was first introduced in 2005 due to escalating jet fuel prices, according to AirAsia.

It was abolished in 2008, then brought back in 2011, and abolished again in 2015.

Similarly, international carriers namely Air New Zealand Ltd, Air France-KLM SA, Cathay Pacific Airways Ltd, EasyJet Switzerland SA, Deutsche Lufthansa AG, Qantas Airways Ltd, Singapore Airlines Group and Wizz Air Hungary Ltd have recently announced that they are putting in place a fuel surcharge.