February 16, 2016: Global airlines countered allegations of profiteering from low oil prices on Monday after renewed criticism that air fares have failed to come down in line with tumbling fuel costs. The head of the International Air Transport Association told an audience of airline chiefs and regulators in Singapore that industry profitability remained fragile despite a record $36 billion in airline industry profits forecast for 2016. “Certainly lower oil prices have helped, but that impact has been delayed and diluted in many parts of the world due to forward hedges at higher than market rates, as well as the rise of the U.S. dollar against local currencies,” IATA director general Tony Tyler said on the eve of the Singapore Airshow.
Politicians and consumer groups in the United States and Europe have called on airlines to cut air fares as Brent oil prices tumbled from $114 in mid-2014 to around $30 today. A year ago, as Brent hovered around $53 a barrel, UK Finance Minister George Osborne tweeted: “Vital this is passed on to families at petrol pumps, through utility bills and air fares”. On Sunday, Graham Stringer, a member of the UK parliament’s transport panel, told Britain’s Sunday Telegraph airlines were exploiting passengers by failing to pass on lower fuel costs. “It is nonsense…It is simply not the case that anyone is profiteering,” Tyler told Reuters, asked about the report.
“While fuel is still a big element of airline costs, there is still a huge chunk that is not affected, so to expect fares to tumble just because fuel has come down is wholly unrealistic,” he said.
“Look at the market in the UK and the number of airlines all competing. As costs come down so will fares, and the public is getting an extremely good deal from the industry right now.” Airlines argue they are only starting to develop a sustainable profit for their investors due to high capital costs, regulatory constraints and intense competition. But the industry is facing mounting consumer and political pressure as some airlines seem slow to unwind fuel surcharges.
The majority of this year’s industry profits, or $19.2 billion, will be generated in North America, IATA says. Tyler reiterated a warning over the profitability of carriers in Southeast Asia, home to cut-throat competition between low-cost carriers. While fuel has fallen, the dollar has risen by 20 percent against regional currencies in the last 18 months, he told a pre-air show conference.
(Source: Reuters, Indian Oil & gas, February 16th, 2016)
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