BA to increase ticket prices due to rise in cost of oil, and expect fewer business passengers during Olympics
BA says it will increase its ticket price this year, due to the rising price of oil. IAG had paid 29% more for fuel in 2011 than in 2010, paying £4.2billion. This had caused IAG to raise passenger fares by up to 3.5%. Willie Walsh said the price of oil had “gone beyond spikes now. We are seeing a big structural shift in the cost of oil,” and predicted an extra £1billion rise in its fuel bill this year, resulting in further fare rises. He claims APD will cut the number of staff the airlines will take on – with no figures to back up this claim. BA expects profits to be lower during the Olympics, as business travellers will reschedule to avoid the Olympics. “Though the Games will be positive for the long-term position of London as a global destination, experience in other host cities suggests that demand could be dampened.”
BA FARES TO RISE DESPITE TAKE-OFF IN IAG PROFITS
IAG chief executive Willie Walsh warns of price rises
Thursday March 1,2012
By David Craik
International Airlines Group, which also owns Spain’s Iberia, said rising demand from business passengers on its lucrative transatlantic routes and better-than-expected cost savings had helped 2011 profits soar to £424million from £70million last time.
Revenues rose 10.4 per cent to £13.7billion helped by “good” leisure traffic numbers and improved in-flight entertainment tempting more passengers to re-book. Its shares increased 1p to 164¼p.
Chief executive Willie Walsh said the strong performance had come despite fuel costs jumping 29% to £4.2billion, causing it to raise passenger fares by up to 3.5%. [Details of oil price at Jet Fuel Price ].
It’s gone beyond spikes now. We are seeing a big structural shift in the cost of oil
Chief executive Willie Walsh
“It’s gone beyond spikes now. We are seeing a big structural shift in the cost of oil,” he said. He predicted an extra £1billion hike to its fuel bill this year resulting in further fare rises. “There is no way we and other airlines can absorb the cost,” he said.
Eurozone woes, strong competition and pilot strikes, which caused Iberia to post a £51.3million loss, would also continue. Walsh vowed: “We won’t back down. We will tackle the structural problems at Iberia though the Spanish economy will continue to be weak for some time.”
Rising air passenger duty (APD) would also hit the group and had forced it to halve the number of new jobs it will create this year by 400. [This is an odd statement. See below]. Walsh added: “APD is ridiculous. The Government is spending billions on the Olympics as a great showcase for the country but this tax puts off leisure and business travellers coming here.” [See below for real facts about APD – and about cost of London hotel rooms during the Olympics by comparison].
He added the Olympics could dent business travel demand but overall it will continue to do well this year. Analysts said the group would also benefit from the improving US economy.
IAG remains confident its deal to buy BMI will be cleared by competition regulators. Walsh brushed off concerns from rival Virgin Atlantic about higher fares as a result. “It doesn’t matter what Richard Branson says, our case is strong,” he said.
BA are not expecting the Olympics to be much of a boost them:
Although Walsh said he supported the Olympics, the airline expected to see a short-term negative effect this summer with dampened demand forecast during the games.
2012 Games will lower demand, BA boss says
Lucy Tobin (Evening Standard)
29 Feb 2012
British Airways, the Olympics’ official airline, today warned the Games will “dampen” demand for its flights, particularly in the lucrative business market.
Willie Walsh, chief executive of International Airlines Group – formed by an 8 billion (£6.76 billion) merger of BA and Spain’s Iberia in 2010 – warned: “Business travellers tend to reschedule to avoid the Olympics. Though the Games will be positive for the long-term position of London as a global destination, experience in other host cities suggests that demand could be dampened.”
Walsh also regretted that passengers will face fare hikes this year because of higher fuel costs.
That is despite IAG’s operating profit more than doubling last year to €485 million as business travellers returned in droves.
IAG saw a 15% increase in business travellers last year and overall revenues rose by more than 10% to €16.3 billion. It shaved nearly 6% off its non-fuel costs last year but the high oil price meant IAG’s fuel bill rose nearly 30% to €5.1 billion, and Walsh warned it would leap again.
“We’re facing a €1.2 billion increase in our fuel bill this year and we can’t bear that cost ourselves,” he said. “We continue to try to offset costs in other part of the business but we’ve got to look at increasing our fares.”
Asked if a fourth fuel surcharge was on the way, he answered: “It could be a combination of that and fare rises. Ultimately the fuel bill is the highest cost element of our business and that will come through to the consumer. There’s nothing we can do about it.”
Passengers also face fare rises as the Government is set to increase Air Passenger Duty in April.
IAG said BA paid £500 million in APD last year and claimed “British aviation’s competitiveness was undermined” as a result. IAG said higher fuel costs and weaker demand in Europe will leave operating results for 2012 lower in this first-half compared with last.
The article above contains this statement by Willie Walsh:
“Rising air passenger duty (APD) would also hit the group and had forced it to halve the number of new jobs it will create this year by 400.”
So half of the jobs they might create in 2012 is 400 jobs, making a total of 800 new jobs this year?
Having said that despite a continuing recession in the UK and Spain, rising oil prices, and possible problems during the Olympics. Something does not add up. They only employed 228 more staff last year, during a year when profits rose 5 fold.
IAG profits up. IAG employed 228 (0.4%) more staff last year with 2.1% passenger growth
February 29, 2012
IAG has reported an increase in annual pre-tax profits of €503m (£425.6m) in the year to December 2011, after a profit of €84m euros the year before. Revenue rose by 10% to €16.3bn, despite an increase in fuel costs of 29.7%. BA made use of the opportunity of announcing their results to complain – yet again – about Air Passenger Duty, saying it “was reducing by about half the number of new jobs it would create this year.” With an increase of +2.1% in passengers last year, they only employed + 0.4% more staff – just 228 more. Not many. The industry routinely makes complaints about APD, which is all of £13 per outbound flight for a return journey to any European airport. APD is a charge put in place to compensate for the fact that the aviation pays no VAT and pays no duty on fuel, so in effect remains under taxed. As airlines add substantial charges much higher than APD for a range of other services, or just to cash in on popular times for journeys, such as half terms, this APD whinge needs to be taken with a big pinch of salt. Yet again.
APD distance bands APD £ per passenger from 1 April 2012
(old rates from 1.11.2010)
Miles from UK Reduced rate Standard rate *
(in lowest class of travel) (in other than lowest . class of travel)
Band A (0-2000) £13 (£12) £26 (£24)
Band B (2001-4000) £65 (£60) £130 (£120)
Band C (4001-6000) £81 (£75) £162 (£150)
Band D (over 6000) £92 (£85) £184 (£174)
* premium classes, business class, first class etc
By comparison with these figures for APD, the cost of hotel rooms for a stay in London during the Olympics is immense:
For example (see Telegraph, 23.2.2012
London 2012: hotels persist with Olympian price hikes
Accommodation at the Premier Inn Victoria, for example, during the Games, which runs from July 27 until August 12, costs from £199, a rate that is non-refundable and must be paid in advance. For the rest of August, rooms start at £87. At the Premier Inn Old Street, August rates range from £75 to £132, but during the Games the cheapest rooms are also £199.
A room at the W Leicester Square, for stays at the beginning of August, costs from £559 per night, and at the Park Lane Hotel, rates start at £479. During the second half of the month, accommodation at the same hotels costs from £299 and £188 per night, respectively.
….. and it continues with more examples.
APD is tiny by comparison.