Air passengers will have to pay more

FARNBOROUGH (Reuters) - Passengers will have to pay more to fly as airlines struggle to eke out further savings to cover soaring fuel bills, airline executives said at Farnborough Airshow on Wednesday.

Airlines will likely plunge back into billions of dollars of losses this year as fuel costs grow to 95 billion pounds, or 34 percent of operating costs, according to the International Air Transport Association (IATA).

Many carriers are imposing fuel surcharges, cutting flight capacity and even flying more slowly to lower costs, but higher air fares may also be inevitable with oil recently nudging $150 a barrel, the executives said.

"There is absolutely no doubt that prices will have to go up," British Airways Chief Executive Willie Walsh said at a conference at the air show. "We have got to price $150 oil into our tickets. We do not have the scope to take that level of cost out of the business."

Rising prices would likely have an impact on demand that would lead to some reduction in capacity, Walsh said. "This is a massive challenge and it is a challenge that will not be solved by cost cuts alone," he added.

It was not clear to what extent the market would absorb further increases in fares, Cathay Pacific (0293.HK) Chief Executive Tony Tyler told the conference.

"The airlines are, I think, going to have to test the elasticity or the inelasticity of demand," Tyler said.

Economy class passengers were not even paying enough to cover the cost of being flown with fuel prices at current levels, but there may be limits to how much first and business class travellers were prepared to subsidise the rest of the cabin, he said.

"(Premium fares) are getting to the point where you have to wonder whether people are going to continue to pay that," Tyler said.