No respite for air passengers even as oil prices reduce

As oil continues its slide, airlines across the world still looking for fuel ‘floor price’

Dubai: Crude oil prices are down almost 50 per cent from June 2014  peak and jet fuel has also plunged more than 30 per cent from a year ago, but airlines across the globe are still reluctant to pass this benefit to customers in terms of lower airfares.

There is no report about falling oil prices impact on airfares anywhere in the world and the UAE-based airlines have no exception. Jet fuel accounts for more than 30 per cent of airlines’ total operating costs, according to International Air Transport Association (Iata).

Hedge funds predicted further decline in oil prices in near future. Crude may drop below $40 a barrel in the next few months, according to Doug King, chief investment officer of Merchant Commodity Fund.

UAE airlines are not seen offering lower fares in the wake of declining oil prices as they said that a number of other external factors are involved in price-fixing and their present fares are very competitive.

“We closely monitor the price of jet fuel and review our fuel supplements on an on-going basis. Our fares are considered extremely competitive by travel agents and our customers, and we remain committed to providing our customers with excellent service and a strong value-for-money proposition,” Emirates airlines spokesperson told Khaleej Times.

Like all airlines, Emirates offers a variety of fares throughout the year depending on market forces, the spokesperson said, adding: “From time to time we introduce special prices to specific destinations, and also post very attractive fares on www.emirates.com that can be booked all year round.”

Crude’s fall is providing a tailwind for airlines posting record earnings. Profits in 2015 will swell 25 per cent to $25 billion, according to Iata.

The sharp drop in oil prices lead to believe that many airlines are looking for a ‘floor price’ where oil bottoms out before they make major hedging fuel contracts and fare price concessions, according to a senior aviation analyst. “Once that happens, there’s a possibility that some fares will slide, but the problem is that while one airline may cut fares, there is little incentive for others to join if it erodes yield and profitability. Essentially it becomes a zero-sum game where no airlines win and passengers do. Airlines can’t survive like that,” Saj Ahmad, chief analyst at London-based StrategicAero Research, told Khaleej Times.

A flydubai spokesperson said: “A number of external factors including a fluctuating fuel price and currency rates impacts the airline’s costs and revenues. Operating in a competitive environment flydubai’s fares are priced according to supply and demand.”

 Etihad Airways also has similar stance as the airline’s spokesperson said: “Total ticket prices are made up of a combination of elements, including fuel surcharges. Etihad continuously monitors and adjusts total ticket prices to ensure that we are competitively positioned in the markets we operate and sell in.”

abdulbasit@khaleejtimes.com