Airlines Reject Criticism Of Fares After Oil Price Drop

February 15, 2016

Bookmark and Share

Global airlines countered allegations of profiteering from low oil prices after renewed criticism that air fares have failed to come down in line with falling fuel costs.

IATA director general Tony Tyler told an audience of airline chiefs and regulators in Singapore that industry profitability remained fragile despite USD$36 billion in airline industry profits forecast for 2016.

"Certainly lower oil prices have helped, but that impact has been delayed and diluted in many parts of the world due to forward hedges at higher than market rates, as well as the rise of the US dollar against local currencies," Tyler said.

Politicians and consumer groups in the United States and Europe have called on airlines to cut fares as Brent oil prices dropped from USD$114 in mid-2014 to around USD$30 today.

On Sunday, Graham Stringer, a member of the UK parliament's transport panel, told Britain's Sunday Telegraph newspaper that airlines were exploiting passengers by failing to pass on lower fuel costs.

"It is nonsense… It is simply not the case that anyone is profiteering," Tyler told Reuters news agency.

"While fuel is still a big element of airline costs, there is still a huge chunk that is not affected, so to expect fares to tumble just because fuel has come down is wholly unrealistic," he said.

Airlines argue they are only starting to develop a sustainable profit for their investors due to high capital costs, regulatory constraints and intense competition.

But the industry is facing mounting consumer and political pressure as some airlines seem slow to unwind fuel surcharges.

The majority of this year's industry profits, or USD$19.2 billion, will be generated in North America, IATA says.

Tyler reiterated a warning over the profitability of airlines in Southeast Asia, home to cut-throat competition between low-cost carriers. While fuel has fallen, the US dollar has risen by 20 percent against regional currencies in the last 18 months, he told a pre-air show conference.