Higher oil price offset by stronger rand

THE oil price, which
is currently trading at
around $68 a barrel, has
increased by about 50%
since June 2017.
As fuel accounts for
around 30% of an airline’s
cost, this trading value
is considered a strong
inflationary indicator when
it comes to the setting of
airfare prices. However,
airfare pricing for 2018
has been relatively stable.
This is attributed to the
stronger the rand.
Chris Zweigenthal, ce
of the Airlines Association
of Southern Africa, said
the oil price had risen
quite slowly over the last
period and therefore the
sudden impact of an
increase in jet fuel would
not necessarily have been
felt. He added that the
vast improvement in the
exchange rate would also
have somewhat negated
price increases in our
market.
“The overall growth in the
market is still in the region
of 3% to 4% and therefore
airfares will remain
competitive in the drive to
retain market share,” said
Chris.
Sally George, market
development manager
South and Central Africa
for Singapore Airlines
confirmed that the
carrier had folded its fuel
surcharge into its airfares
in April 2017 and had not
introduced any further
increases in market fare
prices to the South African
market since then.
Fuel could make up 30%
to 45% of an airline’s
direct operating costs,
said Kirby Gordon, head
of sales and Distribution
for FlySafair. He said that,
unfortunately, the increase
in the oil price had to
be passed on to the
consumer because of thin
airline margins.
However he also
explained that, from a
local perspective, the
stronger exchange rate did
not only affect the price
of fuel but that it also
affected other costs such
as aircraft leasing and the
price of spares and aircraft
consumables. “Last year
we saw the rand weaken
quite substantially, which
compounded the effect
of the fuel price increase,
but the recent recovery
has helped to slow the
bleeding somewhat,” he
concluded.