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Qantas Lifts Fares Again to Offset Fuel Costs

The move to claw back rising fuel costs was embraced by investors, who shrugged off Wednesday's earnings downgrade by rival Virgin Blue Holdings Ltd. and reports of an electrical fire on a Qantas flight from Manila to push the flag carrier's shares up 2.9% in midday trade.

Popular uprisings across a string of Middle Eastern and north African countries, most notably now in Libya, present "a significant threat" to airlines in Australia and around the world by increasing jet fuel costs, Qantas Chief Executive Alan Joyce said in a statement.

Having already raised fuel surcharges on international airfares for a second time in as many months, Australia's biggest carrier said increases of 10 Australian dollars (US$10) per sector will apply to domestic and regional fares for tickets issued on or after March 31.

Increases of up to 8% will apply to fares to and from New Zealand.

Even with hedging and the fare increases, Qantas said it won't be recovering the full impact of current and forecast fuel prices and wouldn't rule out more fare increases.

Higher ticket prices threaten to cool already fragile demand for holiday travel, under pressure from higher interest rates, natural disasters and concerns about the health of the global economy.

Virgin Blue on Wednesday partly blamed higher jet fuel prices for forecasting an annual pretax loss for the year to June 30 of A$30 million-A$80 million.

Qantas has previously forecast its earnings for the same period to be materially higher than last year, but some investors are fearful of a downgrade, particularly as devastating earthquakes in Japan and New Zealand crimp demand for travel.

Even so, Qantas shares rose 2.9% by midday Thursday to A$2.15 due to the fare rise and as Macquarie and Goldman Sachs kept Outperform and Buy recommendations on the stock.

Macquarie is forecasting demand softness in Japan and New Zealand to linger for 5-6 months and price strip A$103 million from Qantas's earnings in the 2011 calendar year. However, it said that Qantas is continuing to benefit from a recovery in demand for business travel, with any potential earnings downgrade already baked into its share price strip.

Virgin Blue is much more exposed to the tightly competitive holiday travel market and the brokers both kept Neutral and Hold calls on its shares despite a drop to a seven-month low of 31 cents each following Wednesday's downgrade.

No injuries were experienced by any of the 147 passengers and 11 crew on board the Airbus A330 flight from Manila to Sydney that had to be diverted to Cairns on Wednesday, a Qantas spokesman said.

"An electrical fault caused smoke and small flames near the left hand windscreen in the cockpit, which the pilots extinguished," the spokesman said.

"We have commenced an internal safety investigation and we have also notified the Australian Transport Safety Bureau, which will conduct its own investigation," he added.

Qantas's safety record has been under the spotlight since an engine explosion on one of its Airbus A380 superjumbos in November forced the double-decker aircraft to make an emergency landing in Singapore.

 

 

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