Air fares take off as Qantas reacts to oil prices

QANTAS will raise domestic and international air fares for the second time in less than a month in an attempt to offset soaring world oil and jet fuel prices.

International air fares will rise by about 4% and domestic fares by about 3% for tickets issued in Australia from June 4.

The hike will increase the price of a ticket from Melbourne to London by $72, while the price of a ticket from Melbourne to Sydney will rise by $3.

Announcing the increases yesterday, the airline's chief executive, Geoff Dixon, said the price jumps — which follow rises earlier this month of about 3% for international fares and 3.5% for domestic fares — were "unavoidable" given surging fuel costs.

The announcement came as world oil prices reached new highs yesterday, hitting a record $US135 a barrel in Asian trade.

Mr Dixon said Qantas had increased its fuel hedging and was now covered for 59% of expected crude oil requirements in 2008-09 at $US111.81 a barrel.

The network and schedules of Qantas, QantasLink and Jetstar was under review to improve efficiency, he said.

In the past Mr Dixon has said the airline would not negotiate its 3% wages policy because of the difficult economic environment given record oil prices. Yesterday's leap in crude oil added weight to predictions of a super-spike. A Goldman Sachs report this month forecast prices hitting $US200 a barrel in the next two years.

Motoring experts yesterday warned of little respite for Melbourne drivers with their own forecasts of more than $1.63 for unleaded fuel next week.

Petrol retailers were charging an average of 151.3 cents a litre for unleaded fuel yesterday — 20.9 cents more than the 130.4 paid by motorists last May. Prices hit 159.9 cents after reaching a record high of 162.9 cents on Wednesday, the peak day of the weekly price cycle.

RACV spokesman David Cumming said the spike in crude oil would take longer than two weeks to filter through to local bowsers.

He warned Australian motorists the price of unleaded and diesel petrol would continue to rise this year.

Fueltrac managing director Chris Cable said diesel prices could reach $2 a litre by next year.

Connex spokesman John Rees said train patronage was expected to rise in coming years, partly as a result of petrol prices.

A new report released yesterday identified high petrol and food prices as hitting Australians' hip pockets harder than interest rate increases.

The report, by the Mortgage and Finance Association of Australia/Bankwest Home Finance Index, revealed consumers rank interest rates as having less of an impact on their budgets.

Meanwhile, Qantas shares dropped 14 cents to close at $3.36 before the announcement of the fare increases.

Jetstar spokesman Simon Westaway would not confirm whether the airline would make further increases since lifting some fares on May 9 but said: "We continue to monitor the existing fuel situation that all airlines are facing."

Virgin Blue spokeswoman Amanda Bolger said the airline, which raised its fares on May 6 in response to rising oil prices, would continue to monitor fuel prices.

Tiger Airways' Matt Hobbs said the airline was not planning to raise fare prices across the board.

GOING UP

¦ Melbourne to London — up $72 to $2455

¦ Melbourne to Los Angeles — up $77 to $2450

¦ Melbourne to Sydney — up $3 to $135

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