The surging oil price is forcing a rethink in the airline industry with several operators moving away from all-in cargo pricing and reintroducing a fuel levy.
But while the levy will soften the blow, it cannot compensate fully for the fluctuation, says Airlink Cargo executive manager Alwyn Rautenbach. Providing some context to the current situation, Rautenbach explained that when the oil price was very high – $120- 130 a barrel – airlines implemented a fuel levy to counter the fluctuation and avoid having to constantly adapt the rates.
When the oil price came down and remained low for some time, they abandoned the levy and increased the freight rate. “But now we are back in a situation where we have a rapidly rising oil price and those that abandoned the levy have brought it back – among them Emirates.”
Every airline has a different surcharge and its own methodology of calculating it. It’s not a coordinated effort. Inevitably, said Rautenbach, the rising fuel price would affect profitability. “It would affect airlines in various magnitudes because some have hedging in place – but in the long run it will affect everyone.”
He believes, however, that it will stabilise in the medium term. “We have already seen it coming down to $74 and Opec has just decided that there is room in the market for more supply, so in the medium term it should stabilise at these levels.”
Stuart Tonkin of ATC Aviation told FTW that airlines that ran fuel surcharges had increased them. The concept of an all-in rate took some time to gain traction, said Tonkin, but some carriers were switching back to a fuel surcharge because of the fluctuations.
“As a GSA we’re were not impacted by the surcharge – except that it increases the cost we pay to the airline.” The combination of a rising oil price and a weaker rand is a worrying development for local consumers – but it's not all bad news, according to Sky Services managing director Bernd Jülicher.
“We have seen an increase in fuel surcharges over the past few weeks but they have stabilised as has the oil price,” he told FTW. “Fortunately for perishable exporters the rand has slipped accordingly – so exporters who were getting R12.50 are now getting R13.50 for their dollar-based C&F invoice returns, so there is a bit of respite for them based on rand weakness.”
But while the weaker rand may be good news in the short term, in the longer term it plays out negatively in higher input costs. Airlines that have hiked surcharges in the past few months include the likes of SAA, Singapore Airlines, Etihad, Emirates and Cathay to mention a few.
“It hasn’t had a major effect and we haven’t had any kickback from exporters based on the fuel increase,” said Jülicher. “Where you do have a problem is if the rand is stable and fuel goes up – a strengthening rand is more of a problem for exporters.
“So far there has only been one increase which is within reason and exporters have been able to absorb it – unlike the situation of few years ago where Brent crude went beyond $100 a barrel. But we are watching it closely and hope there will be no further increases.”
INSERT
Inevitably the rising fuel price will affect profitability. – Alwyn Rautenbach
