Virgin Australia says it will lower ticket prices for travel from Australia to the United States in response to the lower cost of fuel.
Economy and premium economy fares are being cut by A$40, while business class fares are dropping by A$50, Virgin said on Thursday.
Virgin said the change to ticket prices, which would come into affect from Friday, were made “in anticipation that fuel costs will continue to remain at lower levels than the record highs seen in recent years”.
“These reductions reflect the benefits of the decline in global oil prices along with the negative impact of the depreciating Australian dollar,” Virgin said in a statement.
Crude oil prices have more than halved since peaking at a high of about US$115 a barrel in June 2014. Currently, West Texas Intermediate crude oil sits at about US$48 a barrel.
Prices came under huge pressure at the end of November when the Organisation of Petroleum Exporting Countries (OPEC) decided to not reduce production as a way to stop the decline.
Ratings agency Moody’s said recently the sharp drop in fuel costs would boost airlines’ financial performance in the period ahead, with US carriers likely to gain the biggest benefit as they maintain ticket prices at current levels and keep the savings.
“Airlines outside the US will also benefit from declining fuel costs in 2015, but face larger hurdles for similar profitable gains,” Moody’s said in a statement on January 18.
“Longer-haul flights will see fares decline, particularly in Asia, where fuel charges are more prevalent and regulated by some governments.
“Capacity growth will continue to remain balanced to passenger demand in the US, Australia and Europe as the airlines seek to earn acceptable financial returns.”
Moody’s has upgraded its outlook for the global airline industry from stable to positive.
The International Air Transport Association (IATA) said in December it expected average return ticket prices to fall by about five per cent to US$458 in 2015, after adjusting for inflation.
IATA chief economist Brian Pearce said lower fuel prices are “unambiguously good” for the travelling public.
“There is going to be a major benefit for consumers,” Pearce told reporters at IATA’s media day in Geneva on December 10.
Separately, Virgin said it would no longer add fuel charges to the cost of tickets sold in Australia for travel to the United States.
Currently, Virgin’s fuel surcharge for a return trip from Sydney to Los Angeles in economy was about A$680.
Instead, the airline will incorporate fuel, like other costs of operating the flight, into its base fare.
The change brings fares for US-bound passengers in line with the rest of Virgin’s domestic and international network, given the US was the only route where Virgin had a separate fuel surcharge.
“Virgin Australia today announced it will restructure its United States airfares sold and originating in Australia in order to align them with the rest of its flight network,” it said.
The airline noted fuel was just one component of an airfare, with market conditions, operating costs, airport charges and government taxes, as well as currency movements and the airline’s fuel hedging position, also factors in the total price of a ticket.
Flight Centre chief executive Graham Turner congratulated Virgin on the move.
“VirginAustralia has removed fuel surcharges. Great news for leisure and corporate travellers, plus Velocity members,” Turner said on Twitter.
Qantas levies a fuel surcharge of A$680 for travel from Australia to the US in economy and premium economy, while those in business and first pay A$780.
Qantas said recently it was constantly monitoring fuel prices.
The Australian Competition and Consumer Commission told Fairfax Media on January 17 it was currently investigating passenger surcharges.
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