High fuel prices begin to take toll on Gulf carriers (page 2 of 2)

The carrier has had to introduce a fuel surcharge on international and domestic flights to offset some of the cost of the increase in fuel.

It has also deferred some aircraft additions to its fleet until the direction in oil prices becomes clear, according to the airline's CEO Andrew Cowen.

To help offset high oil costs, the airline has implemented a programme to reduce fuel burn by optimising flight paths and reducing unnecessary weight on the aircraft. So far the airline has not been forced to cut any destinations, but it is taking a close look at its routes.

'There is no question that the higher oil price has led to Sama revisiting its fleet and network plan and it will certainly make us more cautious about trying some of the perhaps more speculative new destinations. This unfortunately means fewer options for the consumer, and is another aspect of how damaging these high oil prices have become,' Cowen said.

One of the key challenges for airlines in the region is balancing the need to raise fares to offset high oil prices while ensuring that customers can still afford them.

'The key issue here for all airlines is how quickly and how willing passengers are prepared to pay higher fares due to higher fuel prices. This needs to be considered against a period of very high inflation in the region, where in many cases salaries have not kept up, reducing disposable income.'

'Having said this, a major positive aspect for low fares airlines such as Sama is that because our fares are as much as 75% lower than traditional carriers operating in the region, a fuel surcharge still leaves our fares at very attractive levels. Therefore customers looking to reduce their travel costs tend to find low fares airlines an increasingly attractive proposition in times such as these,' he said.

Asked if the region will start to see bankruptcies in the airline industry if oil prices continue, Cowen said they are unlikely as most carriers in the region are state-owned. Governments will use their booming oil revenues to easily cross-subsidise their airlines' increased losses.

Cowen also thinks it unlikely that the region will see any new private airlines in the near future. 'One impact I do think high oil prices will have is to deter the emergence of new private sector airlines. Why would you start an airline today where your business plan could be invalidated with one movement in the oil price?

'This I think is a key issue for policy makers and consumers alike - many of whom are looking for increased competition, lower fares and more choice in airlines in the region,' he noted.

See also:

Mega airports to take centre stage
Travel industry has yet to feel the impact of high oil prices