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June 28, 2008

Malaysia Airlines raises fuel surcharge by up to 80%
Malaysian Airline System on Friday raised fuel surcharges on its international flights by up to 80 percent, and warned that fare increases around the world were needed to prevent an industry collapse, Reuters reported.

The national flag carrier said it will increase the surcharge by 25 percent on short-haul regional flights and by up to 80 percent on long-haul flights, effective immediately. The fuel surcharge on domestic flights remains unchanged.

The surcharge for a one-way Kuala Lumpur/London flight, for example, has been raised to 736 ringgit ($225.70) from 600 ringgit, while for one-way Kuala Lumpur/Sydney it has increased to 608 ringgit from 422 ringgit.

"The revisions were done on a route-by-route basis to ensure we remain competitive," Managing Director Idris Jala said.

"As these adjustments only partially cover the increase of the fuel price, we will continue to monitor this closely for future revisions, depending on fuel price variations," he said.

Oil leapt to a new record high near $142 a barrel on Friday, extending gains after surging nearly 4 percent in the previous session.

Airlines around the world are facing the heat from soaring prices of fuel, which accounts for a big share of their total costs.

Over the last six months, 24 airlines have gone bankrupt. Many other carriers, including Delta, Northwest, United Airlines and Air Canada have reported massive losses.

State-controlled Malaysia Airlines has managed to stay in the black but last month reported a 9.8 percent drop in first-quarter profit due to higher fuel costs.

It posted a profit of 120 million ringgit ($36.90 million) for the three months ended March 31, down from 133 million ringgit a year earlier.

The airline, which posted two years of losses since 2005, returned to full-year profit in 2007, aided by a business turnaround plan that has seen better yields and cost reduction.

In a separate open letter, Jala warned that with oil prices soaring to unprecedented levels, "the prognosis for the industry is really bleak".

He stressed the need for a "drastic change", including higher fares, and also through mergers and acquisitions.

"More airlines are going to be forced out of business while the majority of us are going to bleed red ink yet again," he said, adding airlines cannot continue to subsidise passengers.

"The general public everywhere must be prepared to face sharply higher prices for air travel now, or be prepared to stomach even higher prices later when the number of participants become fewer and competition fizzles out in favour of consolidation," he said.

"Put bluntly, if these adjustments don't take place - and quickly - the airline industry will collapse and have a ripple effect throughout the entire world economy."

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