KEY POINTS:
Soaring fuel costs mean Air New Zealand long-haul travellers face the prospect of higher fares after a 3 per cent increase in domestic, transtasman and Pacific Island ticket prices.
Air New Zealand's group general manager of short-haul airlines, Bruce Parton, said the airline was not ruling out further
price rises if fuel costs did not drop.
"We don't have an indication on what we're likely to do - it's quite complex obviously."
An announcement is due within a fortnight but as fuel makes up 50 per cent of the cost of a long-haul flight as opposed to about 24 per cent of a domestic flight, increases are likely.
Yesterday, the airline announced increases of $10 on each short-haul international leg and 3 per cent on domestic flights. They will apply to travel booked after March 26 but special discount fares, such as $1 grab-a-seat deals, are not affected.
When domestic fares were last increased because of fuel costs, in May 2006, the price of Singapore jet fuel per barrel was US$87.
It is now US$130, with a US$10 increase in the past month alone.
Pacific Blue, which competes on the domestic main trunk and across the Tasman, said yesterday that it had no intention of boosting its fares in response to rising fuel costs.
"We have no plans to raise prices; we're in the game of lowering them," commercial general manager Adrian Hamilton-Manns said.
Qantas said it was "closely monitoring the fuel situation".
Mr Parton said Air NZ had few options for further savings after cutting labour costs, cutting back on services where possible and a fuel-economy drive. "There's no huge chunks standing out but we'll continue to go after anything we can. We just have no choice in this business."
The airline had shielded customers for as long as possible from soaring fuel prices through its fuel-hedging programme (under which prices are locked in at a specific price in advance).
It has 82 per cent of its fuel locked in at US$80 a barrel but this hedging starts to run out around the middle of the year.
Exposure to high fuel costs is even worse from the latter part of the year when just 20 per cent of fuel is hedged, at US$89 a barrel.
House of Travel figures show a boom in domestic flying, with bookings in the first two months of this year up nearly 27 per cent on the same period last year.
Retail director Brent Thomas said rising fares forced some leisure travellers to cut other spending on holidays and some businesses to rethink over the long term, but he did not expect yesterday's rises to have any major effects. "I don't see it as having a big impact but for those [travelling] on a marginal basis there may be some impact," he said.
Jet fuel prices are around US$20 more than crude oil prices, which were at near-record levels of US$111 per barrel in Asian trade late yesterday, boosted by the US dollar's slump to a new low against the euro.
Investors have flooded into commodities including oil, which they see as a haven amid rising concerns over the United States economy and global credit squeeze.