KUALA LUMPUR – There is strong possibility that Malaysia’s top two airlines will increase their fares due to a surge in oil prices that have pushed up costs, analysts said.
Carriers around the world were raising fares to help recoup the rising cost of fuel, with the oil price rising 40 per cent to US$73 a barrel over last year, they said.
Asian transport equity research firm Crucial Perspective chief executive officer Corrine Png expects Malaysia Airlines and AirAsia Group Bhd to raise their fares sooner rather than later.
“Definitely airlines need to raise their airfares to pass on the higher fuel costs to their customers given the 33 per cent year-on-year spike in jet fuel prices so far this year,” she said, acknowledging that otherwise, AirAsia’s profits risk would decline significantly while Malaysia Airlines’ losses would widen.
Png said ideally, AirAsia and Malaysia Airlines should increase their fares by at least 10 per cent.
“But the ability to implement this effectively will depend on the industry’s demand and supply and how other airline competitors react,” she told NST Business yesterday.
Png said most Asia Pacific carriers were likely to increase their fares due to limited fuel hedging this year.
“But the ability to implement this effectively will depend on the industry’s demand and supply and how other airline competitors react,” she added.
Png said AirAsia and Malaysia could ‘test the water’ first by increasing their average fares by five per cent first or implement a fuel surcharge as a separate item.
“Airlines may lose some of their more price-sensitive leisure traffic as a result but we do not foresee business-related traffic to be affected,” she said.
Png said it would be pragmatic for AirAsia and Malaysia to rationalise their capacity going forward as their breakeven cost had increased.
“Otherwise, they risk losing money the more low-yielding passengers they fly,” she said.
When contacted, AirAsia said the low-cost operator would review its fares based on a number of factors including oil price.
“We have built a lot of resilience into our business by being very disciplined about non-fuel costs, and we are confident we have sufficient latitude to manage any change in oil price,” an AirAsia spokesperson said.
Comments from Malaysia Airlines were not immediately available.
Yesterday, Singapore Airlines Ltd’s low-cost unit Scoot announced it would raise fares across its network by an average of about five per cent, following the surge in oil prices.
The fare hike, effective September 1, will add S$5 to S$30 (RM14.91 to RM89.46) to the cost of each one-way journey depending on the flight duration, the airline said in a statement.
Malaysia-based aviation advisory firm Endau Analytics founder Shukor Yusof agreed that fare hikes from Malaysia Airlines and AirAsia were imminent.
“It depends on the destinations, whether domestic, regional or international. Not much leeway for airlines, irrespective of its low-cost or full service,” he said when asked was on how much would the potential increase be.
Shukor said the increase in fare would not affect the airlines’ network and deter people from flying.
However, he cautioned that a prolonged rise in crude oil would impact airlines’ finances severely.