Oil price turbulence a nightmare for airlines

For major carriers, fuel accounts for about a third of total operating expenses and the annual cost can vary considerably.

Airlines can offset some of the uncertainty by hedging, so they buy ahead at a fixed price and then hope world prices do not tumble.

In recent years, oil prices have ranged between nearly $150 and $70 a barrel, with the current rate about $90. One aviation source said: "Rising oil prices are a horrendous millstone around airlines' necks. Airlines were created to deal with fuel prices at around $30 a barrel, not $100. Every $1 rise in the cost of oil has a 10 million impact on an airline's financial bottom line."

Ryanair, under chief executive Michael O'Leary, has markedly refused to introduce fuel surcharges, although the no-frills carrier charges for the likes of checked-in baggage and has cut down on other costs.

Another aviation source said: "Faced with rising oil prices, airlines cannot simply put the price of their tickets up, as even a rise of a few pence could mean passengers selecting to fly with a rival instead."

He added: "Airlines have decided they must be up-front with passengers and say quite categorically that what they are introducing is a fuel surcharge. But the extra charge to the passenger nowhere near covers the increased cost."

Strict competition rules in the UK, Europe and the United States mean airlines cannot collude on these surcharges.

An insider said: "Airlines have to be extremely careful. To abide by the law, they must simply announce their surcharge and not signal their intentions in advance or talk to a rival beforehand."