23/05/2008

City Airport Adds New Route As Demise Of Cheap Air Travel Forecast

Although oil prices have today weakened slightly ($132) after again hitting an all-time high of $135 yesterday, two diverse 'views' on the future of air travel have been exposed.

While Loganair's new flights between Dundee and both Birmingham and Belfast took off yesterday, Ryanair's Chief Executive Michael O'Leary said yesterday that rising oil prices are 'hurting', but Europe's biggest low-cost airline can still avoid making a loss - even with oil prices so high.

He was speaking as Scotland's longest serving airline launched its two new routes from Dundee Airport.

Loganair's optimism was counter pointed with both O'Leary's prophetic comments and similar views expressed by the boss of British Airways.

O'Leary said: "With oil at $125 (as it was earlier in the week) we certainly won't make a lot of money, but I don't think we will lose money.

"However, if yields (average ticket prices) fall by 5% this year and I think the oil price rises above $135 a barrel, (which it did on Thursday) then we would be at break even."

Mr O'Leary said the airline had been 'calling the oil market wrong' and would certainly resume hedging future fuel needs at below $100 a barrel, possibly even around $100-$110.

He said that "oil is really hurting us now", adding that the airline had hedged 2.5% of its total fuel needs for the next 12 months, around the 'mid 70s' in dollar terms.

He added that he is now hoping oil will stay at $125 to $130 throughout the winter so weaker airlines will collapse and Ryanair can raise fares.

Mr O'Leary said: "I've now come to the view that I hope oil does stay at $125 or $130 a barrel during winter because I think that will bankrupt half of the airlines flying today.

"In which case we'll still be the lowest-fares airline in Europe, but our fares won't be €40 a passenger, they might be a little bit higher."

Broadly in agreement, Britain's leading airline boss declared the era of cheap flights over yesterday as the price of oil hit a record high for the third day running.

Willie Walsh, the boss of British Airways, said the soaring cost of oil allied to global economic uncertainty would force airlines to raise fares in a scramble for survival that will see many of them go bust.

Meanwhile, amid such fighting talk, Loganair's new three return services will operate between Dundee and Birmingham each weekday along with one return service to Belfast City Airport, with a single flight to both destinations every Sunday.

The two new Dundee routes are being operated under the Flybe banner, ahead of the company-wide franchise arrangement that Flybe signed with Loganair that starts on October 25.

Scotland's Transport Minister, Stewart Stevenson, joined Loganair Chairman Scott Grier at the airport yesterday to welcome passengers off the first inbound flight from Birmingham at 10:30 and watch the departure of the inaugural outbound flight to Belfast at 11:00.

(BMcC)

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