Africans may start enjoying cheaper fares come 2015 as airlines plan to reduce travel cost by passing on some of the savings made from declining oil prices.
The International Air Transport Associated (IATA) told Associated Press on Wednesday that ticket prices have not been cut because airlines are still in contracts for fuel that pre-date the previous months’ oil prices fall. IATA represents 240 airlines or 84 percent of total air traffic.
“It’s going to be six months or so before airlines are seeing lower fuel costs, and at that point consumers are likely to see a fall in travel costs,” The Associated Press quoted Pearce as saying.
While bigger airlines may wait till next year to feel the effect of declining oil prices, budget operators like FastJet, which operates in East Africa, have started enjoying the lower crude prices. As the carrier does not hedge its future fuel rates or pre-purchase, it is now realising “substantial benefits” from the current prices of oil.
“With fuel representing around 40 percent of our operating costs and oil prices forecast to remain at these low levels through early 2015, Fastjet is directly benefiting from the reduced oil price,” Ed Winter, Interim chairman and chief executive said recently.
Greater travel demand
Fastjet’s operations in Tanzania, its operating base in Africa, saw 63,146 passengers moved in November, almost double that (90 percent up) of the same period last year.
Passenger traffic has grown by about 5.5 percent per year for the past two decades, according to IATA, but it is expected to grow 7 percent in 2015. Demand for flying is expected to hit its highest growth in emerging markets; Africa, the Middle East, Asia and Latin America.
Oil bonus set to continue
Oil prices resumed their decline on Wednesday to just above $60 per barrel after OPEC cut its forecast for world demand.
Prices had stabilized after a two-week plummet. This was caused by the decision of OPEC not to reduce production. The cartel had at a November 27, in a meeting in Vienna, said it would keep production targets at 30 million barrels a day. But its prediction, on Wednesday, that world demand for OPEC oil in 2015 will drop to 28.9 million barrels a day – the lowest in 12 years – had a ripple effect on the market.
OPEC expects non-OPEC 2015 supply, driven by the U.S., Canada and Brazil, to increase by 1.36 million barrels daily to 57.31 million. Total daily demand for crude is expected to rise just 1.2 percent to 92.26 million barrels.
While oil firms and oil-dependent economies groan under the effect of falling oil prices, airlines are enjoying improved profit and air fares are expected to drop soon. “The drop in oil prices is good,” says Russ Koesterich, chief investment strategist for US-based investment management company, BlackRock. “It’s the rate of decline that’s scaring people.”
