Flyers who are accustomed to the free alcohol and in-flight entertainment of airlines may have to quit the habit very soon! Some of Asia’s leading airlines are likely to cut these giveaways after the latest production cuts announcement from OPEC last week.
Singapore Airlines first introduced the onboard giveaways to every passenger in the 1970s. Other airlines adopted the concept and even extended it in some ways.
The Organisation of Petroleum Exporting Countries decided to increase the fuel cost in their meeting on November 30. It could push the airlines to cancel unprofitable routes, increase the fares, and discontinue fuel-guzzling aircraft along with cutting onboard free alcohol.
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The decision will hit the Asian operators hard, as their current profit margin is almost half than their North American competitors. The fierce competition has already forced them to push down fares. So, the fuel cost rise will further force them to charge for services such as checked-in baggage, alcohol, food, etc., which have long been offered free on long-haul flights.
The traditional U.S. carriers first started charging for additional services to recover from the global financial crisis. Now, many Asian operators are likely to follow the strategy and make money out of those services.
Delta Air Lines, a leading airline in America, has received good results after following the policy. Budget airlines such as Jetstar and AirAsia have long been charging passengers for services during flights.
So, it’s not surprising that the Asian airlines will try to squeeze some money out of this sector, especially when they have an 8% profit margin in 2016 compared to the 15% profit margin of North American operators, according to the International Air Transport Association.
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Cathay Pacific, the flag carrier of Hong Kong and the biggest international airline in Asia, has experienced an 80% slump in their net income for the first six months of 2016. They are currently reviewing their business model to find out the ways to be profitable again.
On the other hand, a spokesman for the Singapore Air said that they would not introduce extra charges, at least for now. Andrew McGinnes, a Qantas spokesman, also stated that they don’t have any plan for charging passengers extra fees. Rather, they will try to be more efficient for reducing costs.