Sky News business editor Michael Wilson

Another casualty of the oil price, Silverjet, the business class-only airline, has suspended all flights after a new investor failed to cough up. Its two closest rivals, Maxjet Airways and Eos Airlines have already crashed into bankruptcy.

Even the established flyers are finding it very tough.

British Airways yesterday slapped sharply increased fuel surcharges on their flights – which means that a family of four heading off to the West Coast of America to take advantage of the weakish dollar will see their fare bill rise by £240. Airlines are already cutting back on in-flight services and in the US they’re keen to introduce a charge for checking in and for the first bag in the hold.

The real question is how they’ve all kept their costs so low, for so long. Airlines protect their fuel costs by buying forward into the market. So, even though the oil price is well over $120 a barrel today, Flyaway Airlines will have probably already have bought contracts to buy a percentage of its annual fuel bill at, say, $80. But airlines tend not to be fully ‘hedged’, since they may need some leeway if the fuel price were to fall.

However, analysts note that since the price of oil has risen 40% since the beginning of the year it’s unlikely that BA, for example, is charging enough to recoup all its fuel costs. A 747 flight from London to San Francisco uses about 100 tonnes of fuel. Last year the cost was $800 per tonne. Recently the price has risen to $1350 a tonne. Allowing for a certain amount of hedging, and the fact that different passengers pay different prices, they have to cover an additional cost of around $55,000 -£27,500- for each flight, from the same number of passengers.

I admit that’s a very rough calculation, but the implication is that BA and the other airlines are now having to pass on all the extra costs, over which they have no control, onto their customers and further these price rises won’t be the last. The era of cheap flying, on long haul at least, is well and truly over.

Comments

[Khalid 30 May 2008 14:23:06]

Sir
As the natural reaction to any business folding would be aaah, no doubt there are underlying reasons as to why commuters alongside consumers have deviated from the thrills of the executive club despite all the [Passion] they bring during the flight.
Fuel as we know is not only the life line of business, but health and prosperity surrounding many an emerging economy and it is afterall a matter to pause and re-think what are we actually out to achieve? Good health brings along with it a sustained labour force, whilst the opposite will in no way increase the hedging of many a fund.
If the argument surrounding global activity is to be sustained, then there is only but one course of action we all can take as human beings, no matter what faith group we belong to.
Assuming it costs 45p to produce, package and still make a profit per litre, then those nations upon whom others rely must make a firm commitment to [Nusrat Fateh Ali Khan & Peter Gabriel] that they will only supply oil to agents who guarantee that they will charge no more than $75 per barrell to consumers, otherwise they will invite direct talks with the likes of British Airways so as to ensure that the true grit of GB is never undervalued, let alone overvalued.
As for Europe, it is high time we as emerging nations told our MEP's enough is enough and time to get our priorities right thus far as sustained business and people practice is concerned.
Good health all and lets get those barrels moving towards the $75 mark within say 14 days hereafter.
(Ameeen, teh sum ameen)

[Michael Cornwall 30 May 2008 13:16:22]

I can write to you not about the air industry ,but fuel related for the fishing industry in Cornwall. Like everyone else I love to see the the fishing boats in the harbours and off the Cornish coast. It is an integral part of Cornwall. I have just soken at length to Andy Wheeler, an ex fisherman but who now works for Cornish Fish Producers Organisation Ltd in Newlyn.He told me that the fishermen are really struggling at the moment. The price of fuel to the fishing industry has doubled in the last year. They have a different tax policy to the Hauliers of 9p a litre which they would like to claim back.
They are completeing a study of fish prices. and generally speaking prices over 10 years have increased by up to 10%.They would like EU to rethink state aid but they know they wont. They want al sorts of help but they really do not think they will get any. Andy told me of some beam fishermen last week after landing and selling fish after all cost ended up with £35.The fishermen are very often generation after generation very traditional and perhaps are not known for their stron voice. I hope your blog is well read Michael and your friends in the city pause for thought even for a second.