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SriLankan Airlines has introduced a fuel surcharge on all its air fares. The decision to increase fares is due to the unprecedented rise in world fuel prices.

Crude oil prices which averaged around US$ 75 per barrel in 2007 have shot up to over US$ 141 for the first half of 2008, recording an 84% increase. In January this year, a barrel of crude oil was US$ 95.

At this juncture of volatility and soaring prices, the most practical way to respond to the sharp increase in cost (fuel consists of 52% of the airline's cost as compared to 27% of the total cost last year) is by way of a fuel surcharge based on the distance.

The surcharge differs according to the destination:

Long Haul - $ 80 (one-way)
Medium Haul - $ 45 (one-way)
Short Haul - $ 25 (one-way)

Last year IATA (International Air Transport Association) predicted a record profit of USD 9.6 billion for the airline industry for 2008. This is not to be. IATA has since revised its prediction to a total net loss of between US$ 2.3 billion and US$ 6.1 billion for the airline industry in 2008 depending on the level of the price of fuel, with a further revision likely.

While this is the magnitude of the crisis caused within a year, the situation does not seem to be improving, despite analysts predictions. This situation will eventually lead to a fundamental re-pricing of fares and other drastic measures if fuel prices do not stabilise. In the past few weeks, American Airlines, United Airlines, Air New Zealand, Qantas, Continental Airlines, Northwest Airlines and Air Canada have announced significant reductions to their international operations.

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