The ever increasing rise in the price of crude oil, which last month touched the $135USD per barrel, is continuing to have a severe negative effect on the bottom line and financial performance of the global airline business. The airline industry, which depends extensively on this vital commodity, is being hit hard by the price of Jet Fuel which in recent times has seen sharp increases exceeding also the hike in the price of crude oil. According to major airline industry organisations including IATA – the International Air Transport Association, these sharp increases have become the major threat to the aviation industry.

In order to deal with the continued spiralling of fuel costs most airlines including Air Malta have over the past years applied fuel surcharges in an attempt to realign their revenues and operating costs. Up to last year Air Malta’s fuel bill almost doubled over the past three years; an increase of €30 million in spite of fuel hedging agreements which the airline had successfully managed to conclude in the past. With the latest surge in Jet Fuel costs in recent months, the airline will incur a further €32 million increase in its fuel costs.

At a meeting in Istanbul this week, IATA director general Giovanni Bisignani warned that if the price of oil falls and stays at $107 per barrel, airlines would lose €1.5 billion whilst if it maintains a level of $135 per barrel, which it hit in May, losses worldwide would be of €3.6 billion.

In the light of this situation as of 1st July 2008 the fuel surcharge on all Air Malta scheduled routes will increase by €4EUR per sector with the exception of flights to Catania, Palermo, Reggio and Tunis which will see an increase of €2EUR, whereas flights to Rome, Milan, Bologna, Venice, Naples and Tripoli will increase the fuel surcharge of €3EUR. Air Malta’s fuel surcharge now stands between 11EUR per sector for the shortest routes to 25EUR per sector for its longer routes.

Air Malta’s current fuel surcharge had been revised in November 2007 when Crude Oil prices were around $80 per barrel and this new additional rate will hardly cover 15% of the increase in annual fuel costs expected for this year. The airline is committed to meet the gap through further cost reductions and efficiencies while at the same time seek further opportunities for revenue growth.

Commenting on these events Joe Cappello, Chief Executive of Air Malta said, “With the continued increases in Jet Fuel, at a time when crude oil price is poised to breach the $140 per barrel, we were faced with the need to continue stabilising our operational budgets to ensure the survival of the Company and to get the operation into sustainable viability. We had to take this corrective measure to realign our costs with the airline’s budgets. Most of our competitors have already taken similar measures and we expect others to follow soon.”

“Air Malta understands that it has a commitment to the Maltese community in general and in particular to the continued growth of tourism arrival figures. The airline maintains that it is being vigilant and is watching the situation very closely on a day-by-day basis in order to make the necessary adjustments if and when justified. The airline is concerned with the present situation and further escalations can continue to hamper the considerable efforts which have been made to turnaround the Company.”

“Apart from watching the price of fuel on the international market, Air Malta is constantly updating its fuel and currency hedging policies to reflect today’s realities. The airline is also applying very rigorously Fuel Burn policies to ensure the most effective way of minimising energy consumption and reduce CO2 emissions.”

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