Qantas, Virgin use lower oil prices to absorb fuel surcharges

SYDNEY (Reuters) - Qantas Airways Ltd (ASX:QAN.AX - News) said on Tuesday it is restructuring its international tariffs to absorb fuel surcharges into base fares, adding that lower oil prices put airlines in a better position to invest in new aircraft, lounges and routes.

The move will not reduce overall prices as base fares will be increased to cover the scrapping of breakout fuel surcharges, but the restructure will benefit passengers who use frequent flyer points to buy fares.

Qantas was prompted into the change by arch rival Virgin Australia Holdings Ltd (ASX:VAH.AX - News), which removed its last remaining fuel surcharges, on its U.S. route, last week. Analysts say removing the term "fuel surcharge" from bookings pages was a significant marketing move.

Qantas, which earns around A$1 billion ($790 million) annually from fuel surcharges, had been keen to keep the separate billing until fuel prices had moved to a sustainable low.

Oil is now about 60 percent cheaper than it was at its June peak, but Qantas said international air fares remained extremely competitive and were significantly lower than when surcharges were first introduced 10 years ago.

"If you look at the trends in global aviation over the past decade, costs and competition have been increasing while fares and airline margins have been falling," Qantas Chief Executive Alan Joyce said in a statement.

The International Air Transport Association (IATA) estimates that the net profit airlines make per passenger this year will rise by just $1 compared with last year, from $6 to $7.

Joyce said Qantas would continue to price its fares competitively, adding that lower oil prices could help put the industry on a more sustainable footing.

"It means airlines are in a better position to invest in new aircraft, new lounges and new routes that ultimately benefit customers," he said.

(Reporting by Jane Wardell; Editing by Stephen Coates)