Investors flee airlines as traffic weakens, fuel surcharges fall

Airline share prices suffered earlier this week in Asia as optimism over China's economic stimulus package faded and investors focused on the risks to regional growth. The sell-off comes as dozens of Asia Pacific airlines reduce their fuel surcharges. More will be compelled to follow suit as oil prices crashed below USD 60 per barrel in New York overnight for the first time in 21 months. Fuel surcharges have now become a competitive weapon.

According to a Centre for Asia Pacific Aviation (CAPA) report, AirAsia is leading the movement, scrapping its surcharges altogether and raising the pressure on rivals to do likewise. Tiger Airways - which never levied fuel surcharges - is also pressing this point. Rival airlines have been holding their surcharges as long as possible to counteract weaker demand and wrong-way bets on fuel hedges.