Nottingham, Nottinghamshire United Kingdom (PressExposure) June 24, 2008 -- 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 Â£4 per customer due to higher fuel prices, while BA 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 Â£883m; and analysts expect easyJet to make a full-year profit of Â£150m.
The major airlines are, in fact, well placed to weather the storm of high fuel prices, especially when considering their fuel hedging strategies - buying fuel in advance at a fixed price. 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 â 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, easyJetâs director of communications, said this week: "easyJet's average fare last year was Â£43 one way, before government tax, so the era of the Â£39 fare is actually still very much alive and well.â And while the press may be plotting their demise, neither easyJet, nor Ryanair have reported a fall in demand â last month Ryanair carried over 5 million passengers, the highest figure ever recorded by any UK airline.
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 itâs 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.
While David Stanley Redfern Ltd, the overseas property specialists, have seen their properties achieve ever increasing rental yields and capital appreciation as more and more holiday abroad. Their Montenegro property is expected to grow in value by 25-30 percent per year, achieving rental yields of between 6 and 10 percent, and Albania property earns 5-7 rental yields and 10-15 percent capital appreciation. With the budget airlines continuing to write their names across the skies; itâs good to know that all these properties are just a short flight away.
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