Asian airlines slash fuel surcharges but fares likely to rise

SYDNEY/SINGAPORE - Asian airlines are slashing fuel surcharges as oil prices hover at six-year lows, but passengers hoping for cheaper tickets will be disappointed as carriers are likely to bump up fares to maintain margins.

Australia's Qantas Airways Ltd became the latest airline to eliminate the surcharge on Tuesday, but at the same time said it was raising base fares as oil was not cheap enough to offset the impact of competition on international routes.

Aviation experts say other airlines are likely to follow suit, because any drop in ticket prices would erode profit margins which, globally, are as low as $6 a passenger. "During the 2008 financial crisis, for example, low demand meant that airlines lost money despite the fuel costs," said Brendan Sobie of aviation consultancy CAPA. "Last year in Southeast Asia, airlines faced an unsustainable situation with low fares and high fuel prices. Fuel costs may have come down but fares remain low. Ticket prices need to be higher for airlines to make money."

Airlines started adding fuel surcharges onto fares in 2004 in response to rising oil prices. Brent crude oil futures , however, have fallen some 60 percent since mid-2014 and Singapore jet fuel prices JET-SIN , a key regional benchmark, have dropped by about half from a year earlier.

Cheaper oil could result in airline profits increasing by $5 billion to $25 billion this year, but profit per passenger will rise by just $1 to $7, showed estimates from the International Air Transport Association, because of intense competition.

At least two consumer groups are crying foul.

Earlier this month, the Australian Competition and Consumer Commission said it would investigate airlines suspected of misleading consumers through fuel surcharges. Choice Australia also criticised airlines for what it called "dodgy surcharges". "Most people would expect the cost of fuel to be included in the base price of a ticket. Stripping out part of the fuel cost and calling it a surcharge was little more than a communications ploy during the discounting airfare war," Choice Australia said.

Qantas' decision to axe fuel surcharges came a day after Malaysia's AirAsia Bhd, Asia's largest low-cost group, said "removing fuel surcharges and reducing travel costs will be a huge boost to the tourism industry."

Philippine Airlines Inc and Cebu Air Inc also removed surcharges last month, while Taiwan's China Airlines Ltd and Eva Airways Corp have cut surcharges about 40 percent over the past six months.

Qatar Airways is planning to cut surcharges, and Emirates Airline last week said it was considering likewise.

Singapore Airlines Ltd (SIA), on the other hand, said it would continue to levy its surcharge, which is among the highest in Asia. "It should be noted that while fuel prices have come down in recent months, the fuel surcharge continues to provide only partial relief against SIA's high operating costs from the price of jet fuel," said the airline in a statement.

Flag carrier PT Garuda Indonesia (Persero) Tbk is equally determined to stick to the surcharge. Its chief financial officer said there was little incentive to cut fares when rivals like Singapore Airlines and Korean Air Lines Co Ltd

continue to charge the same, regardless of oil prices. "If they set a high price, why should we reduce? We have to look at the market too," said Ari Askhara on the sidelines of an industry event.