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Skymark to raise ticket prices to cover fuel costs

Jul 07, 2008

Skymark Airlines Inc., Japan's largest discount carrier, plans to raise ticket prices for at least the second time in three months as it tries to cover fuel costs that have jumped 40 percent this fiscal year.

The airline will raise ticket prices in step with higher fuel costs, President Shinichi Nishikubo said in an interview with Bloomberg Television in Tokyo broadcast today. The carrier increased prices as much as 20 percent in June and will raise prices by about 20 percent again in September.

Skymark, which doesn't hedge fuel purchases, is depending on customers being willing to pay more to stay profitable. The Tokyo-based airline forecasts earnings will drop 92 percent this year after a shortage of pilots forced it to cut flights.

``Some passengers are likely to cut back on their flying with higher prices,'' said Masayuki Kubota, a fund manager at Daiwa SB Investments Ltd., who oversees the equivalent of $1.7 billion in assets in Tokyo at Daiwa. ``Others may shift to the train instead.''

Jet kerosene, the carrier's biggest cost, rose to a record high of $181.85 a barrel in Singapore on July 3, more than double its price a year earlier.

First-Half Profit

Skymark in September will boost its regular ticket price to Fukuoka, in southern Japan, from Tokyo by as much as 20 percent to 23,800 yen ($223) from 19,800 yen in the first half of July, according to its Web site. Skymark's tickets to Fukuoka will still be 35 percent less than Japan Airlines Corp. and All Nippon Airways Co.'s fares of 36,800 yen.

The nation's high-speed Shinkansen train network services Kobe and Fukuoka in western Japan, two of the five destinations that Skymark flies to from Tokyo. Central Japan Railway Co. charges 22,320 yen for the journey, according to its Web site.

The airline last month cut its profit forecast for the fiscal year ending March 31 after it had to cancel 633 flights in the three months to August due to a shortage of pilots. It said it will resume regular service in September as it adds new pilots.

Net income will slide 92 percent to 200 million yen this fiscal year from a profit of 2.63 billion yen a year ago, the company said June 9. Sales will drop 4.1 percent to 48.3 billion yen in the period.

``We should be able to post an operating profit in the first fiscal half,'' Nishikubo said.

Expansion Plans

The airline last fiscal year boosted its passengers by more than a quarter as it lured customers from Japan's biggest domestic carriers All Nippon Air and Japan Airlines with cheaper tickets.

Skymark rose 0.5 percent to 192 yen at the close of trading today on the Tokyo Stock Exchange. The stock has tumbled 25 percent this year, compared with a 5 percent decline at All Nippon and a 16 percent drop at Japan Air.

In addition to price increases, Skymark is also shifting to smaller aircraft to use less fuel. It will replace two of four Boeing Co. 767 planes with smaller 737s by the end of this year, while maintaining a fleet at 10 planes, Skymark's Nishikubo said.

The discount carrier is planning to expand its fleet in preparation of gaining additional flight slots at Haneda airport, Japan's largest, when the airfield opens a fourth runway in 2010.

The airline will add seven planes and almost double the number of pilots it employs to about 80 by the end of November 2011, Nishikubo said.

The discount carrier is also considering additional flights from Nagoya, in central Japan, to cities such as Sapporo, in the north, he said.

Skymark to raise ticket prices to cover fuel costs

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