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British Airways

BA follows rival airlines in cutting fuel surcharge  Oct 15, 2008

British Airways today reduced its fuel surcharges, bringing relief to some passengers following similar moves by rivals and a prolonged dip in the global oil price.

BA has reduced the levy on long-haul flights for economy class passengers but left charges for business class customers unchanged.

From midnight, the surcharge on return flights lasting longer than nine hours - to Cape Town and Delhi, for example - will fall from £218 per ticket to £192 per ticket for anyone travelling in the back of the airplane. The surcharge will drop from £156 per return flight to £136 for long-haul economy class journeys lasting less then nine hours, such as Heathrow to New York or Montreal.

For premium economy passengers on long-haul flights under nine hours, the charge comes down from £176 per return to £166; for return flights of more than nine hours, it is reduced from £229 to £222. Levies for short-haul flights and for business class passengers will stay the same, a BA spokesman said.

The airline's decision to reduce surcharges for only the second time since they were introduced in 2004 follows surcharge reductions by Air France-KLM and close rival Virgin Atlantic, which has reduced its economy class surcharges by the same amount as BA.

Ryanair has criticised BA for keeping its fuel surcharges at the same level as when oil cost just under $150 per barrel, acccusing the airline of charging passengers disproportionately in order to protect profits during a downturn.

BA argued the stronger dollar wiped out some of the gains from a lower oil price, but with oil now trading below $80 per barrel, it has decided to act.

"Other airlines have made a move on surcharges and BA needs to respond in order to keep its fares competitive," said Douglas McNeill, an analyst at BlueOar Securities.

BA's September traffic has been severely affected by the credit crunch. Nine of its top 20 corporate customers come from the banking sector and the airline reported an 8.6% slump in business traffic last month and said "increased anxiety" in global stockmarkets was affecting bookings.

Total passenger numbers in September fell by 5.6% on the same month last year as the airline carried 165,000 fewer customers.

The traffic numbers reflect a downturn in BA's profitable corporate customer base, but they also reflect the consequences of passing much of the fuel price increase into fares. BA's fuel bill is expected to top £3bn this year and the airline has raised fares by 7% so far this year, as well as rasing surcharges, in order to cover the cost.

Low-cost airlines such as Ryanair, whose business model is predicated on filling more than eight out of 10 seats per flight, have responded to the crisis by slashing fares in order to prop up demand.

BA is also covering the cost increase by cutting jobs ‚Äď 450 managers have applied for voluntary redundancy.

The chief executive, Willie Walsh, has described the high oil price and the economic downturn as a "devastating combination" for an airline industry that has lost about 30 carriers to bankruptcy so far this year.

Fuel now accounts for more than a third of most airlines' cost bases, leaving them with the option of cutting jobs or raising fares - or both - to shore up profits. Even with those actions, the most profitable airlines worldwide, including Ryanair and BA, expect to do no better than break even this year.

BA follows rival airlines in cutting fuel surcharge

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