Passengers set to feel pain of jet fuel prices

Source: Evening News - Scotland Publication date: 2000-08-25

A RELENTLESS rise in jet fuel costs is cutting sharply into airline profits and ultimately passengers will have to pay the price, industry experts warned today. Jet fuel prices in north-west Europe are around $330 a tonne, a level not seen since Iraq's invasion of Kuwait in 1990.

And as the price of crude oil continues to rocket, jet fuel shows no sign of relenting, leaving airlines to cope with a bill almost double last year's.

To cope with volatile costs, many airlines hedge their fuel needs by trading on the oil derivatives market, buying future crude oil options when prices are low.

Other airlines increase prices for both passengers and cargo.

Despite increasing its fares by three per cent last month, Virgin Express has struggled with its crippling fuel bill.

Difficult

The airline, which is controlled by Sir Richard Branson's Virgin Group, posted a second quarter pre-tax loss of pounds 4 million. The airline said its fuel cost increase was effectively 91 per cent.

"It is difficult to predict what oil prices are going to do. We hope that they will go down as soon as possible but it is a difficult call," said a spokesman.

One trader at another major European airline said it aimed to hedge anywhere between 20 and 80 per cent of its needs.

But he added that raising ticket prices was currently the most effective way of dealing with the prohibitive cost of fuel.

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-- Martin Thompson (mthom1927@aol.com), August 26, 2000