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Airlines seek fuel surcharge

Higher travel cost seen due to peso decline, oil price surge
/ 05:40 AM May 30, 2018

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 making it costlier to travel or transport goods by air.

“The effect of fuel price and currency has been significant for us,” Lance Gokongwei, president and chief executive 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 budget carrier Cebu Pacific airline, at P20 million a month for every $1 increase in fuel prices while the weakening of the peso is costing an additional P65 million a month. In sum, the combined impact of higher fuel prices and weaker peso is costing Cebu Air P700 million monthly to fly the same 61-aircraft 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 constitute an airline’s single-biggest operating expense.

Global oil prices have recently retested four-year highs, hitting $70 to $80 a barrel in 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 crude supply.

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

Flag carrier Philippine Airlines has likewise petitioned the CAB for an increase in fuel surcharge, with 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.

Meanwhile, airlines in the country are also bracing for a reduction in revenues from the six-month shutdown of tourist hotspot Boracay island.

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For Cebu Air, the shutdown was seen to translate to P500 million to P1 billion in foregone revenues.

“Caticlan and Kalibo constitute about 6-7 percent of our domestic passengers. So for the first six months, we anticipate there should be maybe a P500 million to P1 billion reduction in revenues because it takes time to transfer the flights to other destinations,” Gokongwei said.

“But overall, we think this should be a strong positive for the country as we expect that Boracay will return as an even more popular destination after the rehabilitation is complete,” Gokongwei said.

Boracay was closed starting April 26 to pave the way for a massive rehabilitation plan.

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TAGS: Cebu Pacific airline, fuel surcharge, Lance Gokongwei
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