Air Canada sees fuel costs hurting air travel

Wed May 21, 2008 3:50pm EDT
 
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By Robert Melnbardis

MONTREAL (Reuters) - High fuel prices that are consuming a growing proportion of income at Air Canada ACa.TO will likely hurt demand for air travel, the airline's chief executive said on Wednesday.

Montie Brewer, Air Canada's president and CEO, said the rapid rise and volatility of fuel prices was a concern at the country's biggest airline, which is pushing ahead with plans to use newer, more fuel-efficient aircraft.

"The severity of it will impact customer demand. We'll see how much the customer can absorb and still plan on traveling," he told reporters after the company's annual meeting.

Brewer said every $3 rise in the price of a barrel of crude adds $75 million to Air Canada's annual fuel costs, and fuel now accounts for some 31 percent of the airline's operating cost base, up from 25 percent last year.

In the first quarter, Air Canada's fuel expenses rose 22 percent to C$715 million ($726 million) from C$585 million a year earlier, and fuel costs are now roughly twice what is spent on wages and salaries.

On May 15, Air Canada eased back on its fuel surcharges, brought in just a week earlier, after domestic rival WestJet Airlines Ltd WJA.TO brought in lower extra fees.

Air Canada also plans to starting charging customers a fee for a second checked bag on certain North American flights.

FLEET RENEWAL SAVES FUEL   Continued...

 
<p>An Air Canada plane prepares for take-off at Montreal's Dorval Airport, April 1, 2003. Air Canada is looking for ways to offset record high fuel prices that are consuming a growing portion of its income and will likely hurt demand for air travel, the airline's chief executive said on Wednesday. REUTERS/Christinne Muschi</p>