PAL, Cebu Pacific hold off fuel surcharge hikes to stay competitive
Philippine Airlines (PAL) and Cebu Pacific Air have so far decided not to increase their fuel surcharge even as oil costs and the weaker peso allowed them to hike their fees to customers by at least 40 percent.
Carmelo Arcilla, executive director of the Civil Aeronautics Board (CAB), said PAL and Cebu Pacific were allowed to further increase the fuel surcharge—a mechanism that provided airlines an avenue to recover jet fuel expenses—as of early November.
“Neither airline has informed us they would be increasing the surcharge,” Arcilla said in an interview last week.
The CAB earlier said the fuel surcharge, revived in September this year after the cost of oil shot up by about 25 percent through 2018, could move higher or lower depending on the two-month average price of jet fuel. The price was also calculated in peso terms to account for the currency’s volatility.
PAL and Cebu Pacific immediately availed themselves of the fuel surcharge mechanism when it was implemented by the CAB. Philippines AirAsia, which trails PAL and Cebu Pacific in size and market share, said it would not tap the surcharge to keep prices low for its customers.
In the government’s current fuel surcharge chart, the CAB had set seven pricing tiers that would dictate how airlines could charge the add-on fuel fees to their customers. When it was implemented last September, the fuel surcharge was set at “level 3,” which assumed a fuel cost of P27 to less than P30 per liter. Arcilla said that as of early November, the tier moved up a notch to level 4, or a P30 to under P33 a liter.
Under level 4, airlines can charge an additional P108 to P411 for one-way local flights and P543 to P5,189 for international flights, depending on the distance. The figures are at least 40 percent more than what was allowed under the previous level. The CAB said the fuel surcharge would be removed if the price of jet fuel fell below P21 per liter.
“It could be they want to remain competitive and absorb some costs,” Arcilla said.
He explained that the fuel surcharge levels represented the upper limit of what airlines could add to the ticket price. This means they can choose to charge lower, which is the direction PAL and Cebu Pacific have settled on at the moment.
The higher cost of jet fuel has been a drag to the global airline industry’s profitability. The CAB also worried that the airlines might cut back on less profitable routes to preserve the bottom-line line.
PAL Holdings, the operator of the PAL, posted a net loss of P3.92 billion from January to September this year, in part, due to the 36-percent increase in jet fuel expenses. For its part, Cebu Pacific said profits dropped 36.5 percent to P2.78 billion during the same period. It also cited fuel costs and the weaker peso as the main reasons.
According to the International Air Transport Association, the global trade group of the world’s airlines, the price of jet fuel was down 11 percent to $85.2 a barrel in Nov. 16 this year compared to the previous month. The CAB will revisit the surcharge pricing in early January 2019.
