Singapore Airlines' budget arm Scoot to hike fares as fuel costs rise

SINGAPORE (Reuters) - Singapore Airlines Ltd's budget arm Scoot said on Thursday it would raise fares across its network by an average of about 5 percent in response to a surge in oil prices that had pushed up costs.

The fare hike, effective Sept. 1, will add $5 to S$30 ($3.66 to $21.98) to the cost of each one-way journey depending on the flight duration, the airline said in a statement.

Carriers around the world are attempting to raise fares to help recoup the rising cost of fuel, with the oil price up 40 percent to $73 a barrel over the last year.

The International Air Transport Association (IATA) in June forecast average passenger yields, a proxy for air fares, would rise by 3.2 percent this year, in the first annual gain since 2011 but lowered its annual profit estimate due to the rising cost of fuel and labour.

Air New Zealand Ltd in May announced a 5 percent increase in domestic fares due to rising costs, while regulators in Japan and Taiwan have allowed airlines to put in place fuel surcharges to help compensate for the higher oil price.

Singapore Airlines last week reported a 3.2 percent decline in passenger yields for the quarter ended June 30, including a 1.8 percent fall at Scoot, disappointing investors who had hoped for fare increases.

Scoot on Thursday said it would look to cut costs in addition to raising fares, with initiatives being considered including exploring ways to reduce fuel burn, reviewing supplier contracts and using measures to increase productivity.

The airline said fuel comprised an average of 32 percent of its operating costs and its fuel costs had risen by 31 percent compared to a year earlier.

Scoot reported a S$1 million profit in the June quarter, down from S$3 million a year earlier.

Singapore Airlines said there were no plans for the parent airline and its regional arm SilkAir to follow Scoot's lead and announce specific fare rises in response to higher oil prices.

"Our airfare pricing is dynamic based on supply and demand," a Singapore Airlines representative said.

($1 = 1.3650 Singapore dollars)

(Reporting by Jamie Freed; Editing by Gopakumar Warrier)