Thai Airways Struggles With Brunt Of Oil Prices

[peter991]

Thai Airways struggles with brunt of oil prices

Wednesday, March 19, 2008

The all-time high of US$128 per oil barrel is placing further pressure upon airlines internationally, with Thai carriers considering raising fuel surcharges.

Already onslaught with increased costs, the new highs in fuel costs have clarified the harsh reality for Thai Airways International.

The executive vice-president for Thai Airways, Pandit Chanapai, told the Bangkok Post that “We can’t say by how much the increase would be and when we would activate the new rates.”

Most airlines have refrained from immediately imposing new fuel surcharges upon passengers. Credit issues and the global economic slowdown may already reduce consumer demand, which would be further hindered by increased prices.

Thai Airways recognise this concern, noting that “We need to look at how other players are reacting to the surge in fuel prices and make a move accordingly.”

Furthermore, Thai Airways have already had to face competition issues, after raising surcharges on January 10.

Qantas and Virgin are amongst the airlines who have claimed they will not increase fuel surcharges.

On the other hand, Lufthansa raised its fuel surcharges on domestic and European flights by almost $5 per flight, although electing to maintain current inter-continental rates.

Similarly, United Airlines increased the domestic fuel charge on March 7 by $4.

Mt Chanapai explained that only 70% of the cost increase is covered by the current fuel surcharge, and hence the contribution of fuel has escalated from 30% of the carrier’s total costs, to 35%.

Escalating pressures in Thailand are evident, as Bangkok Airways may follow suit in the raising of prices.

Vice President, Nandhika Varavarn stated “We are monitoring the oil prices but it is too premature to indicate by how much of an increase in fuel surcharge is necessary.”

“Obviously the record prices for fuel are a major concern for us.”

Other airlines are also feeling the pinch. In other news:

Seizure of half its fleet and safety issues grounds Adam Air

A leasing firm has seized half of Adam Air’s fleet, after the Indonesian budget carrier defaulted on its payments.

Scheduled flights on Monday were cancelled, causing delays for passengers, as Adam Air did not have the aircraft to fulfil their timetable, Reuters reported.

The airline’s president director, Adam Suherman, explained that “Out of 22 planes, now we only have 10 because 12 of them have been declared in default.”

“The other 10 have been declared in default as well, but I’m still trying to work out a way to restructure the payments.”

Suherman claimed to “have informed the shareholders that the company needs a cash injection,” especially considering a looming insurance payment deadline.

In a recent update, Adam Air was banned from flying due to “violations that could put passenger’s safety at risk,” according to Indonesia’s chief of air transport, Budhi Muliawan Suyitno.

The airline is to be grounded due to a quarterly safety evaluation, and would be re-evaluated in 3 months. This could result in the permanent removal of its air operator certificate.

After injecting IDR157 billion into the airline, the investment firm PT Bhakti will sell its 50% stake in the airline back to Suhermann, the founding shareholder, for IDR100 billion rupiah (USD$11 mil).

AFP reported that the unloading of the 50% stake is a result of dissatisfaction with safety performance of Adam Air.

Growing debt concerns are following a difficult year for Adam Air, as like all Indonesian airlines, they have been banned from the European Union due to unsafe practice.

Furthermore, Adam Air found further notoriety when one of their aircraft crashed into the sea off Sulawesi Island in January 2007, with the 102 people on board presumed dead.

Suherman was unwilling to disclose whether safety standards would be improved in the next three months, leaving the decision to the shareholders.

He told AFP, “I’m not surprised with the decision. We are having an internal problem that could affect our employee’s morale and performance and would have a bad impact on our safety efforts.”

“We actually had planned to stop operations starting from today. Apart from safety reasons, Pertamina (state fuel monopoloy) had also stopped supplying fuel to us.”

Peter