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Passengers to gain as airlines slug it out

Friday Reflections - By B.K. Sidhu
Friday January 16, 2009

IT does not take travellers long to realise the price difference for air tickets before and after fuel surcharge is removed.

The interesting thing is that some airlines are willing to forego the fuel surcharge to keep their loyal customers flying with them. Deciding to let go of the fuel surcharge is difficult as that is a pipeline airlines have been tapping to subsidise their fuel bill since 2004.

Airlines began adding surcharges to fares in 2004 when oil cost US$37 a barrel. For some destinations, the fuel surcharge is nearly 75% of the cost of the air ticket.

Crude oil has tumbled from its high of US$147 a barrel in July last year. Many airlines have since dropped fuel surcharges even though others are still enjoying the extra money from consumers. AirAsia was the first airline globally to abolish fuel surcharges for all sectors in November 2008. The airfare for an AirAsia flight is now lower than before the fuel surcharge was lifted. That means there is value for the consumers.

Firefly abolished its fuel surcharge in December and this week Malaysia Airlines made the bold move to remove fuel surcharge for domestic routes.

Malaysia may perhaps be the only country in the world where domestic fares are not subject to fuel surcharges.

The move by these airlines is commendable given the current economic slowdown when travellers are finding it difficult to manage their finances.

Passengers should not be footing the airlines' fuel bills when crude oil prices are low although some airlines with hedging contracts may still be paying higher than current market prices for fuel.

There are many other ways for airlines to shift their cost without the passenger knowing. If the fuel surcharges are genuinely removed, well and good, but if they are just parked under a different fee, the customers will still end up paying the same amount - but under another name.

Charging administration fee used to be so common among low-cost carriers that even the full service carriers are now using that as an option to get a little more money to reduce cost.

But the game for airlines is going to get very tough this year. With global passenger and cargo numbers on the slide, airlines have to slug it out to get customers. Lowering fares is one way and removing fuel surcharges is another to entice clients.

Last year, MAS and AirAsia increased their fares by about 30% and analysts believe fares will drop by the same quantum this year in view of declining demand for air travel.

Removing fuel surcharges is just the beginning of a very bitter battle between airlines and the real winners will be the travellers.

Airlines that are quick to make adjustments will benefit as passengers will show no loyalty and switch for bargains.

In this day and age when access to information is at the finger tips, travellers are not gullible; they will go where there is real value for their money.

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