Gov’t approves imposition of fuel surcharge by airlines

The government is re-imposing a fuel surcharge on local and international flights within this month so airlines can survive the double whammy of higher oil prices worldwide plus the weakened peso although the move will make it more expensive for the public to fly or send cargo by air.

Aviation fuel accounts for half of an airline’s operating cost and is their second highest expense, after labor.

The Department of Transportation (DOTr) scrapped the fuel surcharge three years ago when aviation fuel prices went down but decided to re-impose it to give local airlines temporary relief now that prices are surging again.

Already, the DOTr approved a Civil Aeronautics Board (CAB) matrix for fuel surcharge modelled after Japan, confirmed Transportation Undersecretary Manuel Antonio Tamayo. “It has gone through DOTr Secretary Arthur Tugade and we followed his guidance.”

The CAB matrix offers a middle ground “between a higher matrix proposal and a lower one”, he explained. Still, “Everything will depend on the cost of fuel.”

What is important is, “We have to let the airlines survive instead of canceling flights, sacrificing quality of service,” Tamayo stressed.

What the DOTr actually wants is a template that will enable airlines to adjust prices upward if fuel prices rise, downwards if prices go down or scrap the surcharge when it’s no longer necessary, without going back and forth to seek government approval each time.

The global price of jet fuel shot up 24.5% to $92.4 per barrel as of last month versus the same period in 2017, according to data from the International Air Transport Association (IATA).

Earlier, Philippine Airlines (PAL) petitioned CAB for a P282 fuel surcharge each way for flights within Luzon as well as Luzon to Visayas flights; 1405 for Luzon to Mindanao and 1158 for flights within Visayas.

The flag carrier also wants to impose a fuel surcharge of 1222 for Mindanao to Visayas/Mindanao flights.

PAL was in the red by $129 million in 2017, after posting $86-million profits the year before. Without a fuel surcharge, it expects to book another loss this year.

For its part, Cebu Pacific (CEB) asked for CAB approval of a 170 to 1 280 fuel surcharge for domestic flights and $6 to $26 fuel surcharge for international flights.

CEB also wants a fuel surcharge of 11 to 12 for cargo on domestic flights and $0.20 to $0.30 on international flights.

Every $1 increase in fuel prices cost CEB 120 million per month and a weaker peso adds another 165 million per month to its costs. Overall, CEB is forking out 1700 million additional cost monthly. Last year, its profit went down 19 percent due to lower yields from increasing oil prices.

Finally, Philippines Air Asia likewise sought CAB authority to impose a cargo fuel surcharge of 11 to 17 per kilo on actual rate. To offset higher costs, the airline is considering to scrap unprofitable routes and slow down on its expansion.