Qantas To Increase Fares In Response To Record Fuel Prices

[Will T]

This is serious stuff. Expect to hear similar from other players in the region over the coming days....

Qantas To Increase Fares In Response To Record Fuel Prices
Sydney, 22 May 2008
Qantas announced today that it would increase its international and domestic fares for tickets issued in Australia on or after 4 June.

The Chief Executive Officer of Qantas, Mr Geoff Dixon, said Qantas would increase international fares by approximately 4 per cent and domestic fares by approximately 3 per cent. This followed increases of approximately 3 per cent for international fares and 3.5 per cent for domestic fares earlier this month.

He said the increases were unavoidable given the continuing high cost of oil.

"Oil and jet fuel prices continue to break records, with West Texas Intermediate spot crude oil passing US$134 a barrel overnight and Singapore Jet Fuel today trading at nearly US$166 a barrel," Mr Dixon said.

Mr Dixon said Qantas had increased its fuel hedging and now had cover for 59 percent of expected crude oil requirements in 2008/09 at $US111.81 a barrel WTI, inclusive of option premium.

"Despite our hedging activities, fare increases, surcharges, and strong focus on managing costs across our operations, we will not cover these higher fuel costs, which at current prices will add more than A$2 billion to our fuel bill in 2008/09.

"We are continuing to target further efficiency improvements which now include a review our network and schedules of Qantas, QantasLink and Jetstar."

Issued by Qantas Corporate Communication (Q3766)
Email: qantasmedia@qantas.com.au

http://www.qantas.com.au/regions/dyn/au/publicaffairs/details?ArticleID=2008/may08/Q3766

[Brenden S]

So let me guess, they up the price and keep the fuel surcharge?

[Michael Morrison]

Well I LIKE this approach. It certainly beats increasing the fuel fines. They are finally realising that fuel is going to stay high....

Makes the QF points more valuable - now who would have thought that!

[Chris Tully]

Things are starting to get very serious.

Qantas has stated that there may be a requirement to close some routes and retire some aircraft to combat these serious oil prices.

American Airlines are undergoing changes already:

AMR Corporation Announces Significant Capacity Reductions, Aircraft Retirements and Additional Revenue Growth Efforts


Actions Taken in Response to Record Fuel Prices, Economic Concerns and a Difficult Competitive Environment

FORT WORTH , Texas – AMR Corporation, the parent company of American Airlines, Inc., today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11 percent to 12 percent from the previous year. It also outlined plans to retire at least 75 mainline and regional aircraft and unveiled several revenue growth initiatives, as the company responds to record fuel prices, growing concerns about the economy and a difficult competitive environment.

“The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy,” said AMR Chairman and CEO Gerard Arpey. “Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve. We must work to overcome our near-term challenges and to secure our company's long-term future for the benefit of our shareholders, customers and employees. We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future. Those goals are central to the actions we are outlining today.”

Additional 2008 Capacity Reductions
AMR, which is holding its Annual Meeting of Stockholders today, said it will reduce American Airlines domestic capacity - or available seat miles flown – in the fourth quarter of 2008 by 11 percent to 12 percent, compared to the fourth quarter of 2007. According to its April 16 guidance, AMR previously expected domestic mainline capacity in the fourth quarter to decline by 4.6 percent compared to the same period in 2007.

In addition, AMR regional affiliate capacity is expected to decline by 10 percent to 11 percent in the fourth quarter compared to fourth quarter 2007 levels. Previously, regional affiliate capacity in the fourth quarter was expected to increase by 2.0 percent from 2007 levels.

AMR continues to assess the impact of the capacity reductions on specific routes and markets. (For additional information regarding AMR capacity changes for 2008, refer to the table at the end of the release.)

Arpey said the capacity reductions aim to significantly reduce costs as well as create a more sustainable supply-and-demand balance in the market. In recent years, Arpey added, the industry has been hurt by some airlines growing faster than conditions warranted, and that impact has worsened in light of recent economic trends and soaring fuel prices.

As a result of significantly reduced flying, AMR expects to retire 40 to 45 mainline aircraft from American's fleet, the majority of which will consist of MD-80s but will also include some Airbus A300 aircraft. The capacity reductions will also result in the retirement of 35 to 40 regional jets, as well as a number of turbo-prop aircraft from AMR's regional affiliate fleet.

The capacity changes will result in workforce reductions at both American Airlines and American Eagle Airlines and could result in facility closures or facility consolidation. AMR is assessing the scope and location-specific impact of any workforce reductions resulting from the capacity reductions. In addition, AMR is assessing the impact of these capacity reductions on its overall cost outlook.

Additional Revenue Initiatives
Beyond the company's ongoing cost-containment efforts, Arpey noted that AMR has consistently sought revenue improvements through fare increases and fuel surcharges. Since AMR released its first quarter 2008 financial results on April 16, American has participated in or led 15 fare increases, 14 of which were at least partially successful.

Today, American introduced a $15 fee for the first checked bag, given the increasing costs of transporting checked baggage. This fee, which is effective for tickets purchased on or after June 15, does not apply to: American's AAdvantage program members who have achieved AAdvantage Gold, AAdvantage Platinum and AAdvantage Executive Platinum level; those who have purchased full-fare tickets in the Economy, Business and First Class cabins; and those with international itineraries (except to and from Canada and U.S. territories, such as Puerto Rico and the U.S. Virgin Islands).

American also said today that it has increased its fees for certain other services, ranging from reservation service fees to pet and oversized bag fees. The increases mostly range from $5 to $50 per service. The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.

“While we understand that these fees affect customers, we also believe that our pricing for the services we provide remains extremely competitive in the industry and continues to offer our customers ample choice and value,” Arpey said. “The bottom line is that our revenues, which include ticket sales and fees, must keep pace with our increasing costs.”

As evidence of the crisis caused by soaring fuel prices, Arpey cited the U.S. airline industry’s first quarter 2008 pre-tax loss of nearly $2 billion excluding special items and the fact that eight U.S. airlines have filed for bankruptcy protection this year, including five that have ceased service. AMR paid $665 million more for fuel in the first quarter than it would have paid at prices from the year-ago period. Its first quarter fuel expense increased by 45 percent year over year, while its total revenue increased by 5 percent. The price of jet fuel has increased by more than 10 percent since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.

However, Arpey also noted that AMR has made much progress in recent years to better prepare it for the current uncertainty. At the end of the first quarter of 2008, the company's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $15.2 billion, down more than 25 percent from the end of 2002. AMR's Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $10.7 billion at the end of the first quarter of 2008, down more than 40 percent from the end of 2002. AMR also ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million. It had about $2.7 billion in total cash and short-term investments, including a restricted balance of $783 million, at the end of 2002.

“Clearly, we have a lot of hard work ahead of us given the economic realities we face,” Arpey said. “But we have battled through many challenges throughout our long history, and, with the continued dedication of our leadership team and our people, I believe we have the fortitude to continue to do so.“

2008 Expected Capacity (year over year change) May 21 Guidance
(expected range) April 16 Guidance/Expectations
4Q08 FY2008 4Q08 FY2008
Mainline System -8% to -7% -3.5% to -2.5% -1.9% -1.4%
Domestic -12% to -11% -6% to -5% -4.6% -3.6%
International -0.5% to 0.5% 1% to 2% 3.0% 2.5%
Regional System -11% to -10% -6.5% to -5.5% 2.0% -2.1%
Consolidated System -8% to -7% -4% to -3% -1.6% -1.5%


Statements in this release contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. When used in this release, the words “expects“, “plans“, “anticipates“, “indicates“, “believes“, “forecast“, “guidance“, “outlook“, “may“, “will“, “should“, “seeks“, “targets“ and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals are forward-looking statements. Forward-looking statements include, without limitation, the Company’s expectations concerning operations and financial conditions, including changes in capacity, revenues and costs; future financing plans and needs; fleet plans; overall economic and industry conditions; plans and objectives for future operations; and the impact on the Company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact. Other forward-looking statements include statements which do not relate solely to historical facts, such as, without limitation, statements which discuss the possible future effects of current known trends or uncertainties or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations. The following factors, in addition to other possible factors not listed, could cause the Company's actual results to differ materially from those expressed in forward-looking statements: the materially weakened financial condition of the Company, resulting from its significant losses in recent years; the ability of the Company to generate additional revenues and reduce its costs; changes in economic and other conditions beyond the Company's control, and the volatile results of the Company's operations; the Company's substantial indebtedness and other obligations; the ability of the Company to satisfy existing financial or other covenants in certain of its credit agreements; continued high and volatile fuel prices and further increases in the price of fuel, and the availability of fuel; the fiercely and increasingly competitive business environment faced by the Company; industry consolidation; competition with reorganized carriers; low fare levels by historical standards and the Company's reduced pricing power; the Company's need to raise additional funds and its ability to do so on acceptable terms; changes in the Company's corporate or business strategy; government regulation of the Company's business; conflicts overseas or terrorist attacks; uncertainties with respect to the Company's international operations; outbreaks of a disease (such as SARS or avian flu) that affects travel behavior; labor costs that are higher than those of the Company’s competitors; uncertainties with respect to the Company’s relationships with unionized and other employee work groups; increased insurance costs and potential reductions of available insurance coverage; the Company's ability to retain key management personnel; potential failures or disruptions of the Company's computer, communications or other technology systems; changes in the price of the Company's common stock; and the ability of the Company to reach acceptable agreements with third parties. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

AA.COM

[Peter H.]

Fuel up so I guess fares go up. However, as a member of the Qantas group why aren't Jetstar putting their fares up at the same time.

Maybe Qantas passengers are apying to cover Jetstar so they can compete and Qantas go off the map so to speak

[Montague S]

now we know fuel is going up but there is also an upside to this...it eventually has to go back down again, the real question is this, when oil/jetfuel starts price correction will airlines like Qantas be so quick in correcting their airfares?

I'd say by the end of the year the price will head back south....foreign governments won't allow speculators to push the price much higher which will force the retreat...sit tight people, the bubble will burst very soon.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/22/ccoil122.xml

have a read of this article.

[Montague S]

seems to be going down sooner than I thought....lets see what the fares do.

[Andrew M]

WOW - Hadn't checked the oil prices for two or so days and now back around $122 a barrel.

We are just lucky here the $US is so high at around 94cents.

If it was around 80cents we would be paying close to $2 per litre at the moment

We really need the price of oil back below $100 and hopefully $80, until that time don't expect any reductions in the fuel fines/surcharges/increases!

[Michael Morrison]

WOW - Hadn't checked the oil prices for two or so days and now back around $122 a barrel.

We are just lucky here the $US is so high at around 94cents.

If it was around 80cents we would be paying close to $2 per litre at the moment
!

Intertesting that Virgin shares are still in free fall!

I remember paying about 1.05 per litre when I was in London or around $2.20 at the time!

[Andrew M]

Very glad I got out of my Virgin Blue shares at $1.15, now at 61cents!!!

Oh and http://news.theage.com.au/national/departure-tax-to-rise-by-9-20080604-2lld.html

nternational air and sea passengers will pay an extra $9 under a new government charge that passed the lower house on Wednesday.

The opposition, which said it was just another tax, tried unsuccessfully to delay the rise in the passenger movement charge from July 1 by having it referred to a Senate committee.

The Passenger Movement Charge Amendment Bill 2008 raises the charge from $38 to $47 in order to help pay, the government says, for a wide range of security measures. :eek:

[Lukas M]

What!, I know Ryanair do this, but pretty sure Tiger dont, am I wrong or is Mr Westaway getting ahead of himself here??

"Jetstar to charge passengers for talking"
Flying is about to get a whole lot more expensive, especially if you want to speak to a staff member.
Jetstar is considering slugging customers a fee to use manned check in facilities instead of automated machines.
Simon Westaway from Jetstar says the airline is not alone.
"There's some airlines that have implemented that in Australia, one in particular being Tiger Airways.
"Overseas it's becoming common practice and there are a number of carriers looking at it."
Livenews.com.au

[Marty H]

http://www.news.com.au/travel/story/0,26058,23851215-5014090,00.html

[Lukas M]

I notice Jetstar have quietly increased most Domestic sectors by $10

[D Chan]

The opposition, which said it was just another tax, tried unsuccessfully to delay the rise in the passenger movement charge from July 1 by having it referred to a Senate committee.

I find it quite ironic statements like this come from the coalition - how many levies or charges were introduced by them on passenger movements when they were in power during the past decade?

[Montague S]

AIRFARES are likely to rise up to 20 per cent in a desperate bid by the industry to recoup spiralling costs from record high petrol prices, Australia's biggest airline has warned.

Qantas group general manager of sales and distribution Rob Gurney said yesterday at the Australian Tourism Exchange in Perth that it was inevitable airfares would increase even further to cover rising fuel costs.

The further increases, which could kick in within weeks, would also help cover the cost of new baggage security screening and carbon offset requirements.

"We have to increase prices to recover as much as we can," Mr Gurney said, referring several times to a "hypothetical 20 per cent" when speaking about the issue.

A 20 per cent increase would add $61 to a flexi-saver return flight between Sydney and Melbourne, an extra $66 for a flexi-saver Sydney to Brisbane return flight and a whopping $164 to a flexi-saver Sydney to Perth return flight..

It would also increase a return international flight between Sydney and London by as much as $444.

The warnings come as analysts yesterday tipped petrol would hit $1.75 per litre within the next fortnight.

Three weeks ago, Qantas increased airfares by 4 per cent on tickets sold after June 4, which followed a 3 per cent rise earlier in May.

"Air fares will have to go up ... (record fuel prices have been) an industry-changing event," Mr Gurney said.

"The cost of fuel is changing the way Qantas will do its business over the next two years. Where fuel (costs) end up in the long term is difficult to predict."

Mr Gurney warned it could take up to two years before aspiring travellers became accustomed to higher airfares.

He was confident, however, that travellers would eventually realise that even at 20 per cent more, airfares would still be good value compared with 15 to 20 years ago.

Over the past few weeks, Qantas has announced cuts on its domestic and international routes for its own brand and that of its low-cost wing Jetstar.

It has replaced some Qantas flights with Jetstar, due to that airline not being viable because of higher fuel costs.

Mr Gurney said Qantas would press ahead with its $35 billion orders for 200 new aircraft, 80 of which would come on stream within five years.

This was because the airline was "hugely optimistic" about the future and wanted to be set for when the oil price shock was over.

The new-generation Boeing 787 aircraft, of which Qantas has ordered 65 with an option for a further 20, use 20 per cent less fuel per passenger than current jets.

The giant Airbus 380 will also have 25 per cent more seats than the Boeing 747 it will replace from the Qantas fleet.

Qantas tickets for travel on its new A380s went on sale yesterday for flights from Melbourne and Sydney to Los Angeles from October 24. It will fly the 450-seat Airbus double-decker 380 to London from January.

Jetstar commercial general manager Bruce Buchanan said carbon trading and security screening of baggage would add to airline costs.

However, the airline would continue to offer low base fares by not charging for extras such as in-flight meals and carrying check-in baggage. Such extras would be optional costs for their passengers.

http://www.news.com.au/dailytelegraph/story/0,22049,23875368-5013605,00.html

seems QF isn't done yet with airfare hikes...

would be close on $1000 1way on a QF flexi fare from SYD to PER.