Airline fares to soar as oil costs bite

Last Updated: 12:01am GMT 09/02/2008

Fuel bills may lead to higher charges and fewer flights, reports Charles Starmer-Smith.

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Although the price of oil has fallen from a historic high of $100 a barrel to less than $90 this week, the increased cost of hedging fuel - buying oil in advance at a fixed price to protect against future rises - means airlines face ever-higher fuel bills.


	Spiralling oil costs will soon have an impact on flyers

Scheduled carriers will probably pass these costs on to passengers in the form of higher fares, while low-cost airlines are more likely to increase their extra charges.

"What we are spending on oil is more than enough to push everyone into a pretty big loss," said Doug Parkers, chief executive of US Airways.

For example, British Airways has hedged 90 per cent of its fuel at a price much lower than the current cost. But this deal runs out in March, when it will need to buy nearly two thirds of its oil at market price - now around $90 a barrel.

BA's long-haul fuel surcharge on return flights is already £116; in May 2004 it was £2.50. Other airlines have done likewise. In January, Qantas doubled its surcharge for flights from London to Australia to £168 return.

Analysts expect high oil prices to cause a number of airlines to fold or to merge with rivals over the next three years, as demand for flights slows. Last week, John Leahy, commercial director of Airbus, said orders for new aircraft were half what they were in 2007. Ryanair this week said that its profits could fall by 50 per cent in 2008 and it may be forced to ground some aircraft during the winter.

A spokesman for Ryanair said that it would be prepared to counter falling demand by cutting fares. However, as Telegraph Travel reported last week, the Dublin-based no-frills carrier is increasingly imposing extra charges to raise revenue, with passengers often ending up paying three times the headline fare when other charges are added on.

Last month, Ryanair increased its airport check-in charges from £5 to £6 per person return and its baggage charges from £20 to £24 per bag return. If a family of four checked in four bags at the airport, it would face extra fees of £120 (or £72 when booking online) return.

The airline has also raised its credit-card charges from £1.75 to £3 per person, per flight. For a family of four, this equates to £24 for a return flight. Ryanair's charge for carrying sports equipment is up from £34 return to £60 (£50 if you book online).

Ryanair is not the only airline using such tactics. Flybe charges £40 to carry a surfboard and Jet2 charges £56 for a musical instrument, while BA charges £150 (£120 online) if you go over its 23kg baggage limit on a long-haul return flight. While EasyJet admitted this week that the earnings it receives from its charge for checking in luggage (£16 at the airport or £7.98 online) is helping it offset rising fuel costs.

Some travellers are growing more aware of the real cost of no-frills flights and are looking for alternatives.

"Ryanair is in danger of losing customers with the increased supplements. A family of four is not going to get away with just using hand luggage and not placing a suitcase in the hold," said one Daily Telegraph reader, Graham Clark. "With the increased supplements, which are proving quite costly now, I think it will be cheaper to go on a last-minute package holiday." Catherine Kelly, from north London, is now opting for the train over the plane. "The low-cost airlines were a godsend when they first entered the market. However, with all these add-ons I have now gone back to rail travel," she said.

Ryanair's chief executive, Michael O'Leary, has said the airline will keep increasing its charges until half its passengers check in online and carry hand luggage only.

10 hidden charges

£12 to use check-in desks - Ryanair

£15 for priority boarding - EasyJet

£20 for taking a baby (under 2) - Ryanair

£24 for carrying a booster seat - Ryanair

£24 to check in suitcase - Jet2

£24 credit card charges for family of four - Ryanair

£56 to take musical instrument on board - Jet2

£60 to check in sports equipment - Ryanair

£70 to change your name on ticket - Ryanair

£150 excess baggage charge for long-haul flights - BA

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