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Investors at risk from 'air hikes'?

With oil prices off the charts, should overseas investors be worried about rising air travel prices?

There has been much negative press about the rising cost of crude oil and its effect on air-travel, with many arguing it is the end of an era for budget airlines.

EasyJet has admitted that its costs have risen by £4 per customer due to higher fuel prices, while British Airways is expected to raise fares by 4 percent over the next year.
And yesterday, Chief Executive of Ryanair, Michael O'Leary, said average fares for the coming year would rise by approximately 5 percent.

Yet despite all this doom and gloom, Ryanair posted a 20 percent rise in adjusted full-year net profit; BA last week celebrated record pre-tax profits of £883m; and analysts expect easyJet to make a full-year profit of £150m.

Fares to be left untouched?

The major airlines are, in fact, well placed to weather the storm of high fuel prices. BA, for example, has bought about two-thirds of its fuel at $86 a barrel until next March.

And while the airlines will factor in the rising cost of fuel in the short-term, many analysts believe oil is in the grip of a speculative boom - U.S oil consumption fell 7% in February, equivalent to a 2% slump in global demand, but the oil price went up.

Companies such as Ryanair and low-cost rival easyJet will try to leave fares untouched, cutting costs elsewhere, because cheap tickets are the key part of their no-frills business model.

As Toby Nicol, easyJet's director of communications, said this week: "easyJet's average fare last year was £43 one way, before government tax, so the era of the £39 fare is actually still very much alive and well."

And while the press may be plotting their demise, neither easyJet, nor Ryanair have reported a fall in demand - last month Ryanair carried over 5 million passengers, the highest figure ever recorded by any UK airline.

No impact on holiday budgets?

For the consumer, the extra cost in fuel per person is just a small fraction of the holiday budget, especially when considering rising fuel costs are hitting many just as much at the petrol pumps.

A slightly more expensive air-ticket has not, and will not dampen the demand for holidays when it's raining outside and work has been hard.

Indeed, Tui Travel, home to the Thomson and First Choice businesses in the UK, said sales over the last six weeks were up 9 percent on a year ago and the company has been left with fewer holidays left to sell. Winter holiday bookings from the UK were up 15 percent.