Oil price pushing up air fares - Finnair still holding back

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British Airways announced on Monday that it would be increasing air fares in order to take account of surging oil prices. The national carrier is to more than double the surcharge it had already placed on long-haul flights, from £2.50 to £6.00, or around EUR 9.00 for a one-way flight.
      BA is the first large airline to have announced it is putting up fares in the wake of the latest round of increases in crude oil prices. Further unrest in Iraq and the threat of sabotage of production plants pushed the price of US light crude to almost $45 in Asian trading today.
      The surge in prices has been accelerated by burgeoning demand from China and by additional worries over Russian and Venezuelan output.
     
Finnair has stated that it has no immediate plans to raise prices in order to pass on a part of its growing fuel bills. Nevertheless, the hikes put in place by competitors will give the Finnish carrier an opportunty to re-examine its pricing in the future, a spokesman for the company said on Monday. Most airlines, Finnair included, take action to limit the impact of fuel price fluctuations. Fuel buying is hedged in order to provide a cushion against short-term spikes, but a sustained rise such as we have seen of late will inevitably hit profits.
      In early July, Finnair reported a 44.3% increase in scheduled traffic (passenger revenue kilometres), relative to figures for June 2003. The company posted operating profit (less depreciation and aircraft leasing payments) of EUR 37.8 million for the first quarter of this year, but this was before the effects of the oil price increases started to bite.


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