Airlines reported to be ignoring chancellor by not passing on oil price cut benefits to passengers

By Phil Davies (Travel Weekly)

9.3.2015

Airlines are on a reported collision course with chancellor George Osborne for ignoring his call to pass on the benefits of lower oil prices by cutting fares.

A dramatically lower oil price has slashed the cost of jet fuel but critics claim airlines have resisted passing on the savings to their customers through lower ticket prices.

Although the price of crude oil tumbled from more than $100 a barrel last September to $60 a barrel this month and the cost of jet fuel has dropped 38% in the past year, latest figures show the cost of UK air fares in January was up 4% compared with the same month in 2014, the Sunday Times reported.

Osborne warned in January that it was “vital” for the fall in oil prices to be passed to consumers, tweeting that they should feel the benefit “at petrol pumps, through utility bills and air fares”.

But airlines have resisted pressure from the Treasury to slash ticket prices, claiming they are unable to pass on the benefit of lower oil prices at the moment partly because they have hedged a large proportion of their fuel this year, effectively buying it in advance when its cost was much higher.

When the oil price started plunging they remained locked into paying above the market rate for their fuel.

Airline industry sources accused the chancellor of posturing, according to the newspaper.

“It is very short-sighted. I think he wanted to come across as a man of the people,” one was quoted as saying.

Qantas has announced that it is abolishing fuel surcharges — but is raising its base fares to compensate for the cut.

Emirates said in January that it was studying whether to cut its fuel surcharge, but no decision has yet been announced.

Virgin Atlantic has reduced its fuel surcharge by £30 per return flight since December but stressed that “recent falls in the price of oil have not significantly impacted our fuel costs”.

Flybe said it had not lowered its fuel surcharge of £7 on each ticket, while Monarch, which does not levy a surcharge, said it had not reduced its fares.

Andrew Swaffield, chief executive of the Monarch Group, said the best way to get lower flight prices would be for the government to abolish air taxes, “which are amongst the highest in the world”.

Shadow transport secretary Michael Dugher told the newspaper: “All the government has done is issue a weak warning back in January, but it appears that, embarrassingly, Osborne has just been completely dismissed by the airlines.”

The Department for Transport said that the government was watching the industry “like hawks”.

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