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October 6th, 2008
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Home » Archives » Business

Airlines tackle rocketing fuel costs

Carriers consolidate routes and hike rates to offset losses

By Claire Compton
Staff Writer, The Prague Post
July 23rd, 2008 issue

Spiraling fuel prices are hitting the airline industry especially hard during peak season, forcing airlines to cut routes and raise prices when demand tapers off this fall. Budget airlines have been especially hard-hit, as the low fares they build their business model on become increasingly difficult to maintain.
Czech Airlines has avoided cutting any of its routes, but raised fuel surcharge rates for its long-haul flights June 1. Medium-haul flights have remained unchanged, but the surcharge on a long-haul flight from Prague to New York as well as flights to Toronto rose from 15 euros ($24/348 Kč) to 85 euros.
SkyEurope, a budget airline based out of the Czech Republic, Austria and Slovakia, tightened its belt in the first half of 2008 by consolidating hubs and implementing “rigorous cost control” that helped the company offset the 42-percent increase in fuel prices since the first half of 2007, the company announced earlier this month.
In that same period, the airline was able to reduce seat prices 17.7 percent. The company’s operating losses, however, increased 19.9 percent.
“We are probably the only airline without a fuel hedge reporting a decrease in unit costs despite the massive increases in fuel costs,” CFO Nick Manoudakis said.
SkyEurope will limit some flights out of Prague beginning this fall because of the oil crisis, company head Jason Bitter told the server iDnes.cz July 21. Flights from Prague to Sofia and Lisbon will be canceled, as well as previous plans for a route to Larnaca, Cyprus.
The airline’s strategy is to target its longer flights, which are more affected by the oil prices, Bitter said. The company will consider cutting further flights as it faces prices of $150 (2,186 Kč) a barrel this winter.
Other airlines are shifting routes to maximize flights. A Brno to Barcelona flight by Ireland’s budget airline Ryanair will be discontinued as of Oct. 1, according to spokesman Stephen McNamara. “It’s a combination of a falloff in demand and the fuel costs, the impact of which is that we can’t offer the low fares which people demand to make the route viable,” he said.
Other Ryanair flights, such as the Brno to London-Stansted route will continue, as will flights from Prague to Dublin, East Midlands, Frankfurt and Stockholm. A new route from Prague to Birmingham was added June 24. The slight reorganization will allow Ryanair to keep its prices down, McNamara said.
“We will continue to work with all of our operators and airports to keep fares low and we don’t anticipate an increase in fares in the Czech Republic,” he added. The airline will try to minimize losses this winter by reducing its flights 14 percent out of its Stansted airport base.
EasyJet Regional General Manager John Kohlsaat said airlines must constantly re-evaluate routes, even without the oil price pressure.

Claire Compton can be reached at ccompton@praguepost.com


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