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Fuel costs 'may hit business-class recovery'

Dubai, May 10, 2011

Airlines are being boosted by a recovery in business travel, especially to fast-growing emerging markets, though rising fuel prices and weak consumer confidence are hindering growth at some European carriers.

Dubai carrier Emirates said 2010 profit was lifted by growth in business class travel, though British budget carrier easyJet and Scandinavian airline SAS suffered losses after they were hit by rising fuel prices and continued tough economic conditions in Europe.

Carriers across the world have seen first and business-class travel - the most profitable part of their passenger businesses - grow steadily in recent months, fuelled by increased travel to emerging markets.

Britain's BAA, the owner of London's Heathrow - one of the world's busiest airports - has, in recent months, reported a steady rise in long-haul business traffic, especially to China and India.

InterContinental Hotels, the world's biggest hotelier, has also seen profits grow thanks to the return of the the US business traveller and predicted stronger bookings and higher room rates for the rest of the year.

'Business travel has come back over the last year, not just in the Middle East with the likes of Emirates, but all over the world,' said BGC Partners strategist Howard Wheeldon.

'But economy class continues to suffer because of economic uncertainty but oil prices, which I think may well rise again, are the big caveat for airlines large and small.'

IAG, formed by the merger of British Airways and Iberia, last week said premium travel remained strong, echoing recent comments by rivals Lufthansa and Air France-KLM.

EasyJet said it would roll out its plan to entice more corporate clients onto its planes in the second half of the year, which it expects to add to its revenues.

Despite the return of the business class traveller, rising fuel costs - coupled with unrest in the Arab world - could wipe out airline profitability in 2011 and hinder the industry's recovery, airline body IATA said earlier this month.

Emirates said its operating costs rose almost a quarter, largely down to rising fuel costs, while easyJet's losses almost doubled due to a 43 million pounds increase in its fuel bill in the six months to the end of March.

SAS, which posted a first-quarter loss, said it still hoped to be in the black this year though recent fuel price increases made this more challenging.

EasyJet shares in London were 5.8 percent up, while SAS shares in Stockholm were 3.7 percent lower at 1019 GMT.

Fuel accounts for up to a third of an airline's operating cost, and a steep price rise could hurt the industry's efforts to recover from the global financial crisis, particularly given that it often operates on notoriously narrow margins.

International oil prices hit a 2-1/2 year high last month as unrest spread in North Africa and the Middle East and fanned concerns supply could be disrupted.

Brent crude has risen 20 per cent so far this year, with a barrel for June delivery now costing around $112, while US crude is still hovering around the $100 per barrel.-Reuters




Tags: Airline | Business Class | Fuel cost |

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