Rising oil prices stall Virgin Australia’s bid to win passengers from Cathay Pacific and Qantas on Hong Kong routes
Upstart carrier that launched discounted fares to muscle in on Cathay Pacific and Qantas could see foray short-lived, as its CEO hints at higher costs
London-traded Brent crude came within a whisker of US$79 a barrel and oil in New York traded at US$75, threatening global airline profits as jet fuel costs make up a large portion of a carrier’s operating expense.
Virgin Australia CEO John Borghetti said rising oil prices were “not good” and conceded the carrier needed to consider increasing prices.
“I think all airlines are watching fuel very carefully and, in some cases, if not most, starting to contemplate what this means for pricing,” he added.
After posting losses for years, Virgin Australia in April began selling tickets at lower prices when oil was US$10 a barrel cheaper on both benchmarks ahead of its newest flight linking Sydney to Hong Kong. The route featuring discounted fares launched on Monday in a direct challenge to Cathay Pacific and Qantas.
Oil was at US$50 a barrel when the airline began its flights between Melbourne and Hong Kong at the same time last year.
All airlines are watching fuel very carefully
Amid the price war, the International Air Transport Association last month trimmed 2018 global airline profit forecasts 12 per cent to US$33.8 billion, citing higher fuel bills.
While Virgin said it was profiting on domestic routes, it noted its international flights were facing “competitive” pressure.
Wang Liya, Hong Kong Airlines’ vice-chairman and president, declined to comment on the pull-out.
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But Borghetti described the two airlines as working well together despite the dropped offerings.
“We’re very [much] aligned and they code-share on our planes to Australia,” he said of the partnership with the Hong Kong-based carrier.
“We’ll just carry more of their passengers and that’s terrific for us and them, just like they’ll carry more of our passengers to all the points in China. It’s a good relationship.”
