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Air New Zealand has pushed up international economy fares by up to $50 as soaring fuel prices hammer airlines around the world.
Passengers on Air New Zealand now pay $10 more each way on transtasman and Pacific routes and around $50 more on long-haul economy fares as world oil prices near historic highs.
All airlines have been pummelled by rising aviation fuel prices which cause costs to rise by around US$500 million globally for every US$1 increase in the price of oil.
While oil fell to US$94.45 a barrel yesterday, Opec is likely to announce this weekend that production will not be increased, suggesting oil prices are likely to stay around US$100 a barrel.
British Airways announced yesterday it was raising its long haul ticket prices by up to $40 to cover fuel costs and in the past week KLM Royal Dutch Airlines and Lufthansa have announced fare increases of around $20 on intercontinental flights. Air New Zealand, which also blames fare rises on increased airport charges and labour costs, said every US$1 increase in oil prices adds another US$11 million to running costs.
"Therefore, we are naturally concerned about the recent rapid escalation in the cost of jet fuel, particularly for our long haul business where fuel can represent up to 50 per cent of the cost of a flight compared with around 20 per cent for a domestic flight," spokesman Mike Tod said.
The airline was well insulated against further fuel price rises until the end of next March with around 80 per cent hedged at a maximum price of under US$72 for a barrel of crude and rises were unlikely soon on domestic routes, where it now has a new aggressive competitor, Pacific Blue.
Tod said Air New Zealand was endeavouring to hold local prices down as long as possible.
"However, if fuel prices continue to remain at this level in the medium term, we will have to adjust domestic fares too."
Beyond March, 44 per cent or less of Air New Zealand's fuel is locked in at less that US$75 a barrel.
Since the airline began increasing its fares a fortnight ago, it had not seen any impact on customer demand. "Nevertheless, we are not naive to the fact that if fuel continues to increase in price and the cost is passed to customers, there will come a point where some people will chose to either fly shorter distances to keep their cost of travel down or not travel at all," Tod said.
Deputy chief executive Norm Thompson said there were strong long-haul bookings, especially from Hong Kong and North America.
"We will try to offset higher fuel prices by trying to make sure our aircraft are full - we're very buoyed by the forward look."
The head of research at Forsyth Barr, Rob Mercer, said Air New Zealand had bought time with hedged fuel to improve yield - revenue per passenger - into the next financial year.
"A high fuel price environment is not great for airlines and passengers but I think Air New Zealand is in a reasonably good position to do better than average. Everyone globally is going to have to try and recover some of the fuel price increases."
