Qantas CEO Alan Joyce warned that airlines could hike airfare prices by 7 per cent in response to the rising price of jet fuel, while Graham Turner, the boss of Flight Centre, predicted airfares to rise by 15 per cent.
The rising oil prices come due to the Russian invasion of Ukraine leaving jet fuel at over $USD120 ($AUD164) per barrel.
Joyce spoke at the AFR Business Summit on Tuesday, where he announced a hedging strategy for fuel that could buy the airline time but would not spare it from price increases.
“Unfortunately if we stay at these levels, airfares are going to have to go up, we’re going to have to pass them on. But to put it in context, at these levels, around $US120 a barrel, it’s about 7 per cent,” Joyce said.
“It’s not massive but it will have an impact on some levels of travel out there. If it moves further, for every $US4 on the barrel, it’s another per cent that airfares have to improve by.”
According to The Australian, Joyce claimed that any price increases that Qantas imposed would be a fraction of its competitors. He said Qantas’ competitors were more exposed to fluctuations in fuel prices.
“None of the American airlines hedge. So that means that they are completely exposed to it now,” he said.
“A lot of the Asia carriers have a lot lower level of hedging. And we think a lot of our domestic carriers don’t have hedging.
“So the imperative for them to move is a lot bigger than the imperative that we have to move.”
Turner’s claim that flight prices would increase by up to 15 per cent is because fuel costs make up between 30 and 45 per cent of an airline’s overall costs.
“Overall ticket prices could rise between 10 and 15 percent,” said Turner.
“The airlines will feel it more when their fuel hedging comes to an end later this year.”
Turner spoke at the QUT Business Leaders Forum on Tuesday and said he did not see the airfare increase scrimping demand for travel as the world comes out of the pandemic.
Weighing in on the flight price hike discussion was the Australian Competition & Consumer Commission (ACCC) chairman Rod Sims, who said fuel accounts for 25 per cent of airline expenditure.
“I’m concerned for consumers and concerned for the health of the airlines and getting consumers back in the air,” Sims said.
“When it’s 25 per cent of your costs and it’s going up through the roof, it matters.”
According the AFR, the increase in oil price is expected to continue rising and Royal Bank of Canada commodity analyst said it is not “unfathomable” that oil prices could reach as much as $USD200 ($AUD273.49) per barrel.
The Russian invasion of Ukraine has had massive impacts on international travel worldwide.
Many airline’s have changed their routes to avoid flying over Russia, including Qantas, Russian airline’s have been asked to return planes they lease, and Russian planes have been barred from EU airspace.
