Oil, fuel prices add to airline turbulence

[Philip Argy]

Oil, fuel prices add to airline turbulence

By Kathy Swan

[source: abc.net.au 2008-05-18]

Australia's aviation sector is flying into uncertain times as oil prices push up fuel costs and seat numbers outstrip passenger demand.
"The domestic market in Australia shows all the signs of a serious fare war coming up in the next six to nine months," chairman of the Centre for Asia Pacific Aviation Peter Harbison said.
Mr Harbison told ABC1's Inside Business program that seat numbers are expected to rise in the Asia Pacific region.
"This year across Asia we're going to see about 10 per cent additional seats and in Australia probably as much as 20 per cent or even more," he said.
That is a lot more seats coming on at a time when airlines are facing rising fuel costs and increasing competition, with budget operators like Tiger and Jetstar taking off in the wake of Virgin Blue.
Qantas is still cruising ahead as market leader.
Tiger Airways chief executive Tony Davis says fuel prices are hitting all players in the airline industry.
"The entire airline industry is struggling with higher oil prices," he said.
Jetstar spokesman Simon Westaway says although rising costs need to be offset "we don't want to see fare levels jump to a level that could see diminishing demand on some markets."
In the past 12 months, investors have watched a slide of more than 30 per cent in Qantas's share price, while Virgin Blue's has plummeted a more precipitous 70 per cent.
Qantas though is still on track to increase its profit this year.
Aviation analyst for Citi Tim Smeallie says Qantas is expected to stay on top, despite industry pressures.
"There are some key areas of concern around the oil price going into 2009 but at the operational level we feel very comfortable that Qantas has so many levers across its business," he said.