Regional recovery pushes up airfares

Business Asia, March 3, 2000

Asia-Pacific airfares are expected to rise 4.5 per cent this year as economic recovery boosts demand, indicating that a discounting war that dented airline earnings continues to ease, a new survey has found.

Increased demand will enable airlines to pass on higher fuel costs to passengers, according to the American Express Airfare Index, which forecasts that fares will go on climbing after last year's 2.8 per cent increase in first- and business-class fares, and 1.2 per cent in economy class.

Asian carriers will follow US and European rivals in raising prices to reflect fuel costs that have more than doubled in the past year, as the price of crude oil rose to its highest since 1991.

Recovery in Asia will allow airlines to increase flight frequencies to the region. The recession prompted them to re-route planes to North Atlantic routes, causing excess capacity and price wars to fill seats.

"Stronger demand has largely ended the price discounting of 1998-99," said Eric Meierhans, the director of American Express Consulting Services Group.

"In addition, higher costs for the airlines, particularly for fuel, will inevitably be passed on to the consumer."

A 4.8 per cent increase in Indian premium-class airfares led an overall 0.5 per cent increase in premium fares in the fourth quarter.

Business-class fares rose 0.4 per cent and economy fares 0.3 per cent, according to Amex, which surveys 947 published airfares across 165 pairs of cities throughout the Asia-Pacific region.

In 1999 as a whole, Pakistan airfares rose the most, gaining 10 per cent in every class. Hong Kong was also among the biggest gainers, with a 4.3 per cent rise in business class and 4.2 per cent in first class.

In Malaysia, fares in all classes rose more than 7 per cent, about three times the inflation rate, the survey found.

In Japan, first- and business-class fares rose 3 per cent.

US carriers have led the pack in raising fares this year.

Continental Airlines said it would add a US$10 surcharge to business and leisure fares.

"Fares are being increased to compensate for the sharp rises in costs confronting the aviation industry and especially as a result of the steeply climbing fuel prices," KLM said in a statement.

Separately, KLM said it wants to strengthen its alliance in Asia, though it declined to confirm a report in De Telegraaf that it is in talks with Thai Airways International to join its partnership with NorthWest Airlines and Alitalia.