Increased fuel surcharge and new carbon tax may reduce air travel

SINGAPORE AIRLINES (SIA) will raise its fuel surcharge from March 8. The increase also applies to SilkAir flights. Qantas has already done so from February for domestic and regional airfares and from February 15 for international flights.

With all the news about how many airlines are reporting fall in revenue because of the rising fuel price, this should not come as a surprise. It is a fact that the price of jet fuel has gone up, and today reached a record level following reports of a pipeline explosion in Saudi Arabia.

SIA said: “The adjustments will offer only partial relief from the higher operating costs arising from increases in the price of jet fuel.” The explanation is not new. It is not an argument to be refuted. The challenge it will face – as will the other airlines that are likely to follow suit – is customer retention in the face of higher fares (including fuel surcharges).

Just as several airlines are reporting improved passenger traffic in January and starting the year on a promising note after the dismal results of the last quarter of 2011, the industry may be faced with another round of travel cutback.

It will cost even more to fly Qantas because the Australian flag carrier will be imposing a new carbon emission surcharge following the implementation of the carbon emission trading scheme by the European Union (EU) in January and a similar plan by the Australian government in July. The fee will be applied on a per sector basis. For domestic and regional flights, based on a carbon price of A$23 per tonne, it will range from A$1.82 to $6.86. For flights operating into Europe, tickets purchased from 15 February will be subject to an A$7.00 carbon surcharge.

Qantas’ subsidiary budget arm Jetstar will also see higher fares.

Virgin Australia will similarly be imposing the new carbon surcharge which ranges from A$3.00 to A$6.00 for domestic flights. The airline, which operates codeshare flights with Etihad Airways from Abu Dhabi to various destinations within the EU, will be adding a carbon surcharge of $3 per passenger from 1 March. However, the fee may fluctuate.

Expect other airlines to follow suit but with the exception of carriers from China, which has banned its carriers from participating in the EU’s carbon emission trading scheme and from raising fares on that account. However that turns out, the cost of air travel is certainly heading north, and this may not be the best of time for airlines to push it without some cautionary discernment.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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