Passengers face huge price hikes

ArabianBusiness.com
by James Regan on Wednesday, 16 July 2008

Passengers will have to pay more to fly as airlines struggle to
eke out further savings to cover soaring fuel bills, airline executives
said at Farnborough Airshow on Wednesday.

Airlines will likely plunge back into billions of dollars of losses
this year as fuel costs grow to $190 billion, or 34 percent of
operating costs, according to the International Air Transport
Association (IATA).

Many carriers are imposing fuel surcharges, cutting flight capacity and
even flying more slowly to lower costs, but higher air fares may also
be inevitable with oil recently nudging $150 a barrel, the executives
said.

"There is absolutely no doubt that prices will have to go
up," British Airways Chief Executive Willie Walsh said at a conference
at the air show. "We have got to price $150 oil into our tickets. We do
not have the scope to take that level of cost out of the business."

Rising prices would likely have an impact on demand that would lead to
some reduction in capacity, Walsh said. "This is a massive challenge
and it is a challenge that will not be solved by cost cuts alone," he
added.

It was not clear to what extent the market would absorb
further increases in fares, Cathay Pacific Chief Executive Tony Tyler
told the conference.

"The airlines are, I think, going to have to test the elasticity or the inelasticity of demand," Tyler said.

Economy
class passengers were not even paying enough to cover the cost of being
flown with fuel prices at current levels, but there may be limits to
how much first and business class travellers were prepared to subsidise
the rest of the cabin, he said.

"[Premium fares] are getting to
the point where you have to wonder whether people are going to continue
to pay that," Tyler said. (Reuters)