Virgin Blue's Outlook

[Kurt A]

It seems the fuel levy is also playing a hefty role in the reduction of Virgin's Annual profits.

Qantas and Virgin to raise fares, Tiger holds out

Australian domestic carriers can no longer struggle against record-high jet fuel prices, as Qantas contemplates matching the recent fare raise of Virgin Blue.

The era of budget travel within Australia is grinding to a halt, as cheaper airlines can no longer absorb the 60 percent rise in fuel prices in the past year.

On the heels of Virgin Blue’s announcement that one-way fares would rise up to $12 next month, a Qantas spokesman has confirmed that raising prices is under consideration.

The spokesman noted that Qantas is “watching the fuel situation carefully and considering both fuel surcharges and fare levels.”

The International Air Transport Association has estimated that the 62 percent rise in jet fuel compared to last year will add $US56 billion to fuel prices, the Australian reports.

Qantas has remained quiet on the impact of these rises on their annual takings, but Virgin Blue has forecasted over $120 million in additional fuel costs next year.

The recent announcment of Virgin Blue regarding its annual profits, which are predicted to fall from $216 million last financial year to $100 million, this year, led to the stock price of Virgin Blue dropping 21 percent to a record low of 87c.

The pessimistic outlook for Virgin Blue appears to have affected Qantas, as their stock fell almost 4 percent despite the promise of CEO Geoff Dixon that the forecasted record profits for the year would not be amended.

However, competitive newcomer to the market, Tiger Airways, refuses to follow suit with the major carriers in rising prices in what is, perhaps, a somewhat premature statement.

“Tiger Airways has the lowest cost base of any Australian domestic carrier and is committed to offering the lowest possible air fares,” said CEO Tony Davis.

“As a result, we will not be matching the increased fares being imposed on consumers by Virgin Blue.”

The tourism industry, especially in domestic activity, has already given an impaired performance this year, and the fare rise is expected to place further stresses as available seats may outstrip demand.

Tiger Airways may have their finger on the pulse, as Davis continues, “history has shown that in times of economy uncertainty true low-fare airlines, like Tiger Airways, are more attractive to consumers as they hunt out the lowest possible fares.”