Qantas hikes fares

Airline blames high fuel costs and falling Aussie dollar

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 1, 2013 12:14 pm AEST

In a blow to travellers, Qantas Airways (ASX:QAN) is increasing fuel surcharges on its international routes and raising domestic airfare prices, thanks to the falling Aussie dollar and higher fuel costs.

The changes will come in on or after the 14 August 2013. Customers travelling in economy will see an average increase of $20 each way, with travellers to the US facing a $25 increase in the base fare one way. Business class travellers to South America will be slugged an additional $75, taking the fuel surcharge on those tickets to $335.

"While we use a range of tools to mitigate the impact of fuel costs – including fuel surcharges, price increases and hedging – the Qantas Group is still under-recovering the cost of past fuel price increases," it said. In 2012, Qantas faced its highest ever fuel bill of $4.3 billion, 18% higher than in 2011.

Qantas says that this is the first time since April 2012 that it has increased its fuel surcharges across its international network. The company reports that since that time the cost of Singapore Jet Fuel in Australian dollars has increased significantly. Qantas buys its fuel in US dollars, so the falling Aussie dollar pushes up its fuel bill.

Domestic and regional QantasLink fares will also go up, but will average between 2 and 3%. Qantas subsidiary Jetstar is reported to be reviewing its fees, but has yet to make a decision on whether to raise fares. There's no word yet on whether Qantas competitor Virgin Australia (ASX:VAH) will also raise its fares to recoup some of the additional fuel costs.

Frequent flyers who use their points to pay for airfares have to pay the additional fees and charges, including fuel surcharges. With Qantas having almost 9 million frequent flyer members, raising the fuel surcharge is a means to recoup some of its fuel bill from those flyers.

Qantas was forced last month to lower its surcharge to match its partner Emirates, to close a loophole that allowed frequent flyer travellers to avoid paying hundreds of dollars.

Foolish takeaway

Most airlines now add on a fuel surcharge fee to the base ticket price, including Singapore Airlines and Air New Zealand (ASX:AIZ) as a means of recovering their high fuel costs. If the Aussie dollar keeps falling, Qantas and other airlines are likely to keep increasing their fuel surcharge.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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