Air New Zealand today announced that it will increase the fuel surcharge on airfares sold from October 26 due to the record high aviation fuel prices.
The cost of Singapore Jet Fuel has doubled from US$30 a barrel in July 2003 to US$60.45 today. Since Air New Zealand last raised its surcharge in August, the cost of fuel has risen by US$9 a barrel.
Air New Zealand's Group General Manager Marketing, Network and Sales, Norm Thompson, says that even taking into account gains from hedging and foreign exchange movements, fuel is now expected to cost the airline NZ$140 million more than it did last year. This equates to NZ$620 million this year, up from NZ$480 million in FY04.
"The unprecedented level of jet fuel prices is a heavy burden for airlines around the world. We have been fortunate to have hedges in place and the full benefit of these have been passed on to our customers," Mr Thompson said.
"However, as each month goes by, hedges run off and are replaced by current price hedges which in the current environment are costing the airline considerably more than they have in the past."
Trans-Tasman flights from Australia will incur a AU$35 per sector surcharge (up from AU$28).
Flights to the Pacific Islands from Australia will incur a AU$70 per sector surcharge (up from AU$56) - made up of AU$35 surcharge between Australia and New Zealand and AU$35 surcharge between New Zealand and the Pacific Islands.
Flights to Los Angeles, San Francisco or Honolulu from Australia via New Zealand incur a AU$77 surcharge (up from AU$56) - made up of AU$35 surcharge between Australia and New Zealand and AU$42 surcharge between New Zealand and USA.
Customers flying to London from Australia will incur a AU$110 surcharge (up from AU$78) - made up of AU$35 surcharge between Australia and New Zealand, and AU$42 surcharge between New Zealand and USA and AU$33 surcharge between USA and UK.
Flights booked and paid for before October 26, for travel commencing after this date, will not be subject to the increased surcharge.
Cargo rates are under review and no decision has been made on any additional fuel surcharges at this time.
Mr Thompson says that like airlines around the world, Air New Zealand would be extremely concerned if the cost of fuel continues to rise. This is compounded by the fact that the cost of aviation fuel is increasing at a faster rate than benchmark crude oil as the crack spread, or cost of refining, is also increasing exponentially.
With annual consumption of the equivalent of 7.7 million barrels, aviation fuel is
Air New Zealand's second largest operating cost behind labour. For each US dollar per barrel the cost of fuel increases, the additional total cost to Air New Zealand's annual fuel bill is around US$7.7 million before hedging.
"Air New Zealand continues to be committed to providing its customers with everyday low fares. Even in the current climate of fuel surcharges we remain highly competitive in one of the toughest aviation markets in the world," he says.
Mr Thompson says Air New Zealand's current hedges and the increased fuel surcharge will cover most of the additional costs imposed by the record jet fuel prices.
"In the event fuel prices return to previous levels on a sustainable basis, we will remove the fuel surcharges proportionately. It is certainly our hope that we are able to do this," said Mr Thompson.
Air New Zealand's fuel hedging policy maintains a 12-month rolling hedge that varies between 52 and 72 percent of 12 months uplift. When prices are at more moderate levels, the hedge is extended out to two years. Longer dated hedges are not being implemented at this time.
Presently the company is 57 percent hedged on a rolling 12-month basis and of that hedge, the next six months are hedged 74 percent.
Each month around 500,000 barrels of hedges mature and they are replaced with new hedges.
The usual quarterly disclosure of our fuel hedge position will be released at around the timAir New Zealand Raises Fuel Surchargee of the Annual Shareholder Meeting in Christchurch on October 27.
