Oil price hike hits airlines' profits

Oil price hike hits airlines' profits

Carriers unlikely to raise airfares

Aircraft sit parked at Don Mueang airport in Bangkok during the Covid-19 pandemic. (Photo: Pattarapong Chatpattarasill)
Aircraft sit parked at Don Mueang airport in Bangkok during the Covid-19 pandemic. (Photo: Pattarapong Chatpattarasill)

The oil price surge has taken a toll on airlines' profitability, disrupting the opportunity to capitalise on rising domestic demand.

Low-cost carriers are reluctant to raise airfares as passengers remain price-sensitive during the pandemic.

Tassapon Bijleveld, executive chairman of Asia Aviation, the majority shareholder of Thai AirAsia (TAA), said the average load factor in February stands at 72-73% and may gradually escalate to 80% as the subsidy campaign for local travellers restarted this month.

"We should benefit from growing demand, but unfortunately oil prices have risen steadily since late last year, from around US$60 a barrel to over $80. This is one of our main operating costs, so most of our flights could not post a profit," said Mr Tassapon.

Positive momentum in the domestic market is forecast to continue in April, which has a projected load factor of around 90% for the Songkran festival. TAA plans to maintain airfares to avoid any impact on tourist sentiment, he said.

However, if oil prices hit $100 a barrel as some pundits have predicted, a hike in airfares might be unavoidable, said Mr Tassapon.

He said all airlines have to take a cautious approach to price strategy as higher airfares will make people think twice about flying. Consumers already have other concerns, such as health, safety and purchasing power, said Mr Tassapon.

The only solace regarding oil prices is local airlines were granted a reduction in the jet fuel tax until June 30, which should lighten the burden to some extent, he said.

According to International Air Transport Association data, the jet fuel price surged to $105.7 a barrel, a 77.8% increase year-on-year, as of Jan 28.

Nuntaporn Komonsittivate, head of commercial operations at Thai Lion Air (TLA), said the airline will not raise airfares during the oil price uptick as it will impact the average price of 1,200 baht a flight TLA would like to maintain.

An improving load factor of around 70% has proven to be a wasted opportunity as the margin on each flight was squeezed by higher costs, she said.

"We would like to have an 80% load factor during the Songkran festival in April. A ticket price hike during that peak time is possible, but it would be from higher demand rather than fuel cost," said Ms Nuntaporn.

She said after Thailand reopened the borders via the Test & Go scheme, there was less demand from international tourists than for domestic flights.

TLA wants to monitor the first two weeks of this month to ensure the Test & Go scheme can carry on without another pause.

Other Asian nations are reopening and the airline plans to reconnect international flights with those countries again.

"As soon as Bali and Singapore are officially reopened, we're ready to resume services right away," said Ms Nuntaporn.

TLA plans to add an aircraft to its passenger fleet at Don Mueang airport this quarter and maintain its two wide-body Airbus A330s at Suvarnabhumi airport for cargo services, which also recorded higher demand.


Do you like the content of this article?
COMMENT (2)

Air-condition marathon?

The engineer who developed the air conditioning for Qatar's World Cup stadiums says that a cooling system for an Olympic marathon is possible if the Gulf state bids for the Games.

16:47

Explainer: Why is Indonesia's new criminal code so controversial?

JAKARTA: Indonesia's new criminal code ushers in a raft of new laws, including banning sex outside of marriage, insulting the president, and expressing any view that runs counter to state ideology.

16:22

Investors look to emerging markets as planets align for end of dollar bull market

NEW YORK: As the US dollar tumbles from multi-decade highs, some investors are betting emerging market currencies will be big winners from a sustained reversal in the greenback.

16:01