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High fuel prices and weakening dollar exchange rate prompted the return of fuel surcharge on airline tickets.

Government okays return of fuel surcharge by airlines

The government has approved the petition by local airlines to re-impose a fuel surcharge on tickets so air carriers can survive the high oil prices compounded by a weakening peso.

The fuel surcharge will lead to an increase in passenger fares and cargo rates.

In the aviation industry, jet fuel accounts for half of an air carrier’s operating cost and second highest expense, following labor.

The Department of Transportation (DOTr) scrapped the fuel surcharge three years ago when aviation fuel prices went down but agreed to re-impose it because fuel prices are rising again.

The DOTr approved a Civil Aeronautics Board (CAB) matrix for fuel surcharge modelled after Japan, confirmed Transportation Undersecretary Manuel Antonio Tamayo and approved by DOTr Secretary Arthur Tugade.

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

“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; P405 for Luzon to Mindanao and P158 for flights within Visayas.

The flag carrier also wants to impose a fuel surcharge of P222 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.

Cebu Pacific (CEB) asked for CAB approval of a P70 to P280 fuel surcharge for domestic flights and $6 to $26 fuel surcharge for international flights.

CEB also wants a fuel surcharge of P1 to P2 for cargo on domestic flights and $0.20 to $0.30 on international flights.

Every $1 increase in fuel prices cost CEB P20 million per month and a weaker peso adds another P65 million per month to its costs. Overall, CEB is forking out P700 million additional cost monthly.

Last year, its profit went down 19% due to lower yields from increasing oil prices.

Lastly, Philippines Air Asia likewise sought CAB authority to impose a cargo fuel surcharge of P1 to P7 per kilo on actual rate. To offset higher costs, the airline is considering to scrap unprofitable routes and slow down on its expansion.

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