Monday, June 23, 2008

High fuel costs lead to reduced B.C.-Asia service

Waiting lists, diversions not a concern this summer
Joanne Lee-Young
Vancouver Sun

Belinda Yuen, assistant manager with XO Tours Canada Ltd., has seen a slowdown in bookings this summer.
CREDIT: Ward Perrin/Vancouver Sun
Belinda Yuen, assistant manager with XO Tours Canada Ltd., has seen a slowdown in bookings this summer.

VANCOUVER - The masterminds behind B.C.'s efforts to boost trade with the Asia-Pacific have long identified the need for more airlines offering more seats between Vancouver and Asia's major cities.

This is still the overarching strategy. But, for the time being, high fuel costs have several carriers publicly - or sometimes discreetly - dropping flights, merging schedules and substituting planes to reduce capacity.

Last week, after Air Canada announced that it was axing its Vancouver-to-Osaka service, Hong Kong-based Cathay Pacific Airways said it will reduce weekly flights to Vancouver because of escalating global fuel costs. Just a few months ago, Cathay chief executive Tony Tyler had bumped weekly flights up from 17 to 21 "in response to growing demand for travel to Hong Kong, China and other parts of Asia."

Indeed, it is shaping up to be a completely different summer this year for Belinda Yuen, assistant general manager of Vancouver-based XO Tours (Canada), one of the largest local companies to specialize in travel to China. She said that survival tactics elsewhere include Shanghai-based China Eastern Airlines running a fluctuating summer schedule with different cuts in June and July.

As well, Beijing-based Air China "has told us verbally that it might cut flights and that it is looking closely at its loading. [And out of Taiwan], China Airlines has cancelled one flight and switched from big planes to smaller ones."

The summer season is usually a time of fending off demanding customers, placing them on waiting lists, or desperately diverting them to Asia via Seattle, San Francisco or Los Angeles because there simply aren't enough seats out of Vancouver.

A year ago in particular, tour offices like Yuen's at XO were hopping on the super-cheap ticket promotions offered by the since-failed Hong Kong-based Oasis Airlines.

"Now, [the airlines] have to get rid of seats, and still no one really wants to go," said Yuen. "I even called some other agents to see if it was just us, but everyone seems to be the same."

The extra cost of fuel surcharges is one thing, but travel spending to China has dipped for other reasons too, said Paulus Ng, president of Silkway Travel, a Vancouver travel agency with Hong Kong roots.

"People are avoiding it because of the Olympics. Hotel and tour prices are very expensive, and there is no way for operators to make a profit," said Ng.

Add in controversy over Tibet, the earthquake disaster in Sichuan and now heavy flooding in many southern provinces, and "you have [even] less people traveling. China is a major player for Asia-Pacific traffic and unofficially [all the airlines serving China] have cut flights," said Ng.

Back to the cost of fuel: Generally speaking, it is nearing 40 per cent of total expenditure for many airlines.

"It is the single biggest expense," said Campbell Wilson, vice-president for Canada at Singapore Airlines. He added that for airlines that fly long-haul from Asia, the situation is even more acute, with the proportion at slightly more than 40 per cent.

"It's very hard to reduce other cost elements unless you do what Air Canada did," he said, referring to that airline's decision last week to shed some 2,000 jobs.

While European-based airlines can mitigate some costs because the Euro has been at record-high levels and fuel is priced in U.S. dollars, Asian-based carriers haven't seen the same appreciation in their local currencies, said Wilson.

At the end of June, Singapore Airlines will start serving New York with new planes that have been completely refitted so that every seat is business class. By the end of September, such planes will also fly to Los Angeles.

"This is one of the few ways, in this environment, to offset the cost of fuel," especially on long haul flights, said John Korenic, director of aviation marketing at Vancouver International Airport.

"But it's not something that Vancouver [which is not a major business destination] could support."

For now, Korenic emphasized that while "a couple of airlines are pulling back on capacity, the [information] through to April, and even May, shows that Asian numbers are quite strong. ... We will have to wait and see."

jlee-young@png.canwest.com

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