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As oil prices continue to surge, more airline passenger fuel surcharges
are likely, though there is no prospect of corporate discounts mitigating them,
according to British Airways executives. BA head of U.K. and Ireland sales and
marketing Richard Tams said airlines would not scrap surcharges in favor of
reflecting higher fuel costs through published fare increases. Fare hikes, he
said, are more complicated to implement than surcharges and airlines would have
to apply corporate discounts, which they cannot afford to provide on revenue
meant to cover their fuel costs.
Fuel is an essential cost of doing business for an airline, and
surcharges have acquired a permanent status, having been introduced in 2004 by
BA and most of its major competitors. Tams said he could not see the situation
changing to allow negotiated discounts to lower fuel surcharges for BA's
"If our business travelers are interested in having a sustainable
airline, they will have to accept this," Tams said. "A lot of it is
to do with the mechanics of fare-filing. It is much easier for us to do it
through the surcharging mechanism; otherwise we would have to refile the entire
extent of our fare database. We recognize that means surcharges are not part of
the corporate deal, but if they did [become subject to a corporate discount] it
would have a massive impact on our revenues. Other costs don't fluctuate in the
same way as oil. We desperately need the surcharges to make a profit."
Oil prices since the end of 2010 rose steadily before accelerating
during the past month, owing to political unrest in the Middle East. The price
of Brent crude last Friday reached a two-year high of $119, although it since
has retreated to around $112. "We have had recent surcharge adjustments,"
said Willie Walsh, chief executive of BA parent International Airlines Group,
referring to two increases since mid-December. "We will keep the situation
under review. Everybody needs to understand that a high input price for oil
does ultimately find its way through to the consumer."
International Airlines Group, reporting combined figures for BA and
Iberia, expects its fuel bill to rise to €5.1 billion this year from €3.9
billion last year, although the projected increase is driven in part by