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Airlines seek higher fuel surcharges

aviation industry hit by spike in oil prices, weakening peso
/ 09:41 AM May 29, 2018

Lance Gokongwei

Reeling from the double whammy caused by surging global oil prices and the weakening of the peso, airline operators in the Philippines have asked regulators for an increase in fuel surcharges, potentially jacking up the cost of air transportation.

“The effect of fuel price and currency has been significant for us,” Lance Gokongwei, president and chief executive officer of Cebu Air Inc. told reporters after the stockholders meeting of conglomerate JG Summit Holdings on Monday.

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Gokongwei estimated the effect of fuel on Cebu Air, operator of Cebu Pacific airline at P20 million per month for every $1 increase in fuel prices while the weakening of the peso is costing additional P65 million per month. In sum, the combined impact of higher fuel prices and weaker peso is costing Cebu Air P700 million monthly to fly the same fleet, he said.

“To avoid losses, we will try to become more efficient but likewise, we have applied for fuel surcharge increase with the CAB (Civil Aeronautics Board),” Gokongwei said.

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Cebu Air petitioned for an increase in fuel charges by P70 to P250 for domestic flights. “This recovers approximately just half of the increased cost we’re facing, so we’re really trying to minimize the increase to the lowest possible amount,” he said.

The fuel surcharge is typically granted by the CAB to help airlines recover part of volatile fuel costs, which usually constitutes an airline’s single-biggest operating expense.

Global oil prices have recently retested four-year highs, hitting $70 to $80 per barrel range at the global market. The spike in mid-May was partly due to concerns that US efforts to sanction Iran’s crude exports could cause further tightening in the crude market.

In the case of Cebu Air, the assumption was just a range of $60 to $70 per barrel for this year.

Flag carrier Philippine Airlines have likewise petitioned the CAB for an increase in fuel surcharge, which the rate depending on the route.

“It has been with the CAB for more than three months but no action yet,” PAL president Jaime Bautista said.

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TAGS: CAB, Cebu Air, Cebu Pacific, Philippine Airlines
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