Qantas, Jetstar to Hike Fares

After encountering turbulence in 2011 due to a prolonged labor dispute with three labor unions, flag carrier Qantas Airways is set to soar in 2012.

Besides resolving the labor row with aircraft engineers and leaving the problem with pilots and ground crew for Fair Work Australia to arbitrate, Qantas is also set to hike its fares. A similar move is being made by its budget carrier Jetstar.

Qantas blames the fare hike, which takes effect on Feb 9 for domestic trips and Feb 15 for international trips, to rising aviation fuel costs and the impact of carbon taxes in Australia and Europe. The fare increase, to be collected through higher surcharges on international and domestic passengers, will be up to 24 per cent.

That means one-way plane fare between Sydney and Melbourne would go up by $5, while tickets for international flights would increase by up to $60.

Total fuel surcharge for one-way trips to the U.S. will reach $310, while those bound for Britain will be $350. Passengers bound for Hawaii and Asian destinations will be slapped an extra $20 fuel surcharge while those going to South America and South Africa will have to add $40 more.

Qantas subsidiary, Jetstar, would also increase domestic tickets by $10 or up to a 7 per cent hike. However, the Jetstar fare hike would be collected beginning July 1.

Qantas estimated the carbon tax, approved by the Australian parliament in late 2011, would cost the air carrier $115 million which it would pass through the addition of $1.82 and $6.86 on one-way tickets of domestic and international passengers. Those bound for London and Frankfurt would have to pay another $3.50 surcharge to cover the carbon tax being collected by the European Union on all airlines passing through the zone's skies.

Virgin Australia has no plans yet of increasing its fare, a company spokesman said.

Former Qantas chief economist Tony Webber, however, warned of the negative impact of a plane fare hike on the air carrier's finances, he pointed out in an article in The Sydney Morning Herald on Friday.

Mr Webber reckoned that if Qantas would hike fare by an average of 2.5 per cent, revenue would only increase if demand falls by less than 2.5 per cent. If the demand declines by over 2.5 per cent, the airline would have to contend with higher costs and lower revenue which would impact its profit.

Instead of hiking fares, Mr Webber recommended that Qantas reduce seats.

"Reducing capacity both reduces fuel costs and forces up average airfares. Fuel costs go down because fuel consumption falls and fuel consumption falls because it is positively linked to the number of seats that are flown," he explained.

However, the former Qantas chief economist conceded that most air carriers are hesitant to reduce seats.

"Airlines are extremely reluctant to reduce seats, because they don't want to run the risk of conceding market share to competitors. Sometimes they need to learn, however, to look after their own backyard and let others worry about theirs," Mr Webber concluded.