By admin
As of 25 March, KLM and Air France will be adding a surcharge to long-haul ticket prices as fuel prices soar.
KLM has stated the cost of the surcharge varies on destination and travel class, such as a return flight between Amsterdam and New York will be €40 for economy or €100 for business class. The surcharge only applies to new bookings.
Backtracking from Air France?
Air France’s decision comes as a surprise, with the airline stating in Le Monde just four days ago that it has avoided raising prices thanks to hedged fuel costs. A spokesperson for the airline said:
Air France-KLM has hedged 72% of its oil consumption for the first quarter and 63% for the second quarter at $90 a barrel, confirmed back in February. The decision is likely a pre-emptive move against a prolonged Russo-Ukrainian war, with current oil prices at levels not seen since 2008.
Increasing cost
Following last week’s warning by experts that airfares are likely to skyrocket if oil prices do not decrease, several other airlines have expressed concerns over the uncertainty of the fuel market.
KLM-partner airline, Delta, has stated that ticket prices could increase by at least 5% this summer. Speaking at the JP Morgan Industrials Conference on Tuesday, airline President Glen Hauenstein noted that the airline needed to recapture around $15-$20 each way on a ticket, feeling confident that Delta could meet that in the second quarter.
However, several airlines consider the move too hasty, especially considering a drastically recovering market. American Airlines has suggested that stronger summer bookings could offset rising fuel prices. The carrier does not hedge its fuel consumption, with CEO Doug Parker adding that the industry will continue to make money regardless.
In 2010, oil prices were around US$80 per barrel; the airline industry made US$4.8 billion, which was a record in earnings for the industry. Next year, oil prices went up to US$111.26 per barrel. Earnings fell. It takes a while to react. The reaction to higher oil prices is less capacity and higher prices. So when it runs up quickly like it just did, it takes a while to respond, but we respond, and indeed, in 2012, we got back nearly to 2010 revenue levels. We can make money with oil prices of US$100 or higher, and we will. That’s not a long-term impact on the industry’s ability to make money.”
Chief credit analyst for Standard and Poor’s, Phillip Baggaley, differs, noting pricing will still put pressure on the bottom line.
“Even with this strong traffic, the airlines can’t recapture all the higher fuel cost, particularly if they go up quickly.”
What about other airlines?
Malaysia Airlines will be adding fuel surcharges from 23 March to mitigate the costs of unprofitable routes. Emirates, JAL, and ANA have added surcharges onto their domestic routes.
Speaking to Aviation24.be at a recent press conference, Lufthansa CEO Peter Gerber has stated that the Lufthansa Group has hedged fuel contracts and will closely follow the market. Lufthansa is 63% hedged throughout 2022 at $74 a barrel.
Europe’s most outspoken CEO, Michael O’Leary, has already addressed concerns, claiming Ryanair will not introduce any fuel charges this summer. The low-cost carrier is 80% hedged on fuel until March 2023.
