Airlines pay price for creating 'flying is cheap' image

The aviation industry is guilty of creating the impression that "flying is cheap" and will pay the price as rocketing oil prices in the coming months force no-frills carriers out of business, the joint head of the world's biggest airline has said.

Peter Hartman, the chief executive of the Dutch company KLM, one half of Air France/KLM, said airlines had been wrong in allowing consumers seduced by the arrival of budget carriers such as Ryanair and easyJet to think that the low cost of flying would continue for ever.

The aviation executive told The Independent that while his own company was insulated against some of the effects of the rapidly rising fuel costs because of its strategy for hedging fuel contracts three to four years in advance, he expected "bloodshed" elsewhere in the industry as carriers struggle to absorb a 90 per cent increase in kerosene prices over the past 12 months.

But, in a tacit admission that airlines are in part reaping the cost of rapid expansion in recent years, Mr Hartman said: "I won't say that the good times are over. But what we did wrong was to give the consumer the impression that flying is cheap. I have just come back from the United States and drivers there are complaining because they are having to pay $4 [£2.04] for a gallon of fuel ... Consumers are now realising that fuel is not for free."

The KLM executive is the latest in a long line of airline bosses to issue a gloomy prognosis for an industry that is expected to pay an extra £37bn this year for fuel. IATA, the trade body, predicts that losses in the industry this year could exceed £3.1bn amid a widespread expectation of increased ticket prices and the increased use of extra charges for checking in luggage or onboard meals.

United Airlines, America's second largest carrier, announced this week it was cutting 1,600 jobs and grounding 70 of its least fuel-efficient planes to help meet its soaring fuel bill. It joins a long list of carriers which have taken similar measures including American Airlines, which has cut its domestic capacity by 12 per cent, and Qantas, the Australian national airline, which has put up international flight prices.

Mr Hartman said he expected the fuel hikes to hit no-frills airlines particularly hard because they do not hedge their prices and will see the share of fuel in operating costs rise from 13 per cent to up to 25 per cent. He said the cost of extra fuel to KLM alone this year would be at least €1bn (£790,000).

Echoing predictions that some smaller airlines could be forced to merge with larger competitors, Mr Hartman said: "In the coming months there will be a shake out in many corners of the industry, including some low-cost carriers. We don't know what the reaction of the consumer is going to be in the current climate. But one response could well be faster consolidation within the industry."