‘Unrealistic’ for airlines to raise fares on rising fuel prices
KUALA LUMPUR: Airlines should not increase airfares following the recovery in oil prices as the move is unrealistic and may result in airlines losing their customers. CAPA Centre for Aviation chief analyst and Southeast Asia chief representative Brendan Sobie said airfare was an indication of supply and demand as well as competition.
“Just because oil prices have increased, that doesn’t mean airline can easily increase their airfare even if they want to,” Mr Sobie said.
“It is good enough but it is kind of unusual because fare is fluid and it varies from market to market, depending on competition.”
Mr Sobie pointed out the move will realistically not be valid and simple for airlines to impose although airfares might increase in certain amounts.
“The consumers have to afford to take it and they also have other choices,” Mr Sobie said.
“If one airline raises its airfare, certain consumers might switch to other airlines.
Therefore, it does really affect competition,” he added.
Sobie said Malaysia was extremely in a competitive market, citing that Malaysia Airlines Bhd (MAB), Malindo and AirAsia currently competing on most major routes. “Fares and yields have been under pressure for the last few years. “These airlines continue to compete very aggressively and AirAsia in particular continues to expand rapidly and add capacities,” he said.
“Adding that Malindo and MAB have slowed a bit in terms of growth.”
Sobie said all airlines prefer to increase fares and improve yields in a bid to offset the surge in oil prices but it was not easier said than done.
“Airlines change their fares all the time, depending on market to market such as the date of ticket purchased for specific routes,” Mr Sobie said.
“There is always a lot of adjustment in fare and it’s happening all the time with a lot of sale and promotions.”
MAB spokesperson told NST Business that the national carrier was currently maintaining its airfares. “Airlines adopt a dynamic approach towards pricing in which the earlier a passenger books the lower the fares and higher probability to access promotion prices,” he added.
MIDF Research aviation analyst Danial Razak said it did not rule out the possibility of MAB or AirAsia increasing its air fares, given the higher oil prices.
“It would be a strategic move to protect the margin from any significant contraction.” Mr Sobie said.
“Another alternatives are to increase its ancillary income, which could be done by expanding its food menu and sell more duty-free products.”
Danial added AirAsia was one of the airlines that adopt fuel hedging policy, hence it would provide extra cushion to absorb any jump in fuel costs.
“At this current environment, it does provide a cost advantage to AirAsia, in comparion to other airlines which purchase all their fuel at spot price,” he said.