Prices of Cebu Pacific, PAL tickets up on fuel surcharge application

Ticket prices for Philippine Airlines (PAL) and Cebu Pacific Air went up last week as they started implementing the fuel surcharge on domestic and international operations after getting the go-ahead from the Civil Aeronautics Board (CAB).

The current surcharge tier approved by the CAB meant airlines could add P74 to P291 to the price of a one-way domestic trip ticket, depending on the distance flown. For international flights, the range was an extra P381 to P3,632.

Officials said at the sidelines of a business forum organized by the Philippine Competition Commission on Monday that the current tier assumed a fuel price of P27 to P30 per liter. On the CAB’s fare matrix, the current surcharge regime falls under the third out of seven levels. The CAB said the surcharge would be removed if the price of jet fuel would drop to below P21 a liter.

The government approval was in response to the higher price of jet fuel, up by more than 25 percent over the past year. The increase has weighed on the global airline industry’s bottom line, increasing worries that commercial carriers might stop or downscale their less profitable routes.

PAL and Cebu Pacific started to implemented the surcharge last Wednesday, their respective officials said Monday. Philippines Air Asia had submitted its revised petition last Friday and was waiting for the CAB’s approval, an official said yesterday.

Based on the CAB’s matrix, a hypothetical trip between Manila and Cebu would cost an additional P170 for a one-way ticket, assuming the airlines charged the maximum under that tier. A flight to Hong Kong or Taipei could cost an additional P381 while a trip to North America or the United Kingdom could cost an extra P3,632.

“Fuel surcharges only recover a portion of the costs,” Alexander Lao, Cebu Pacific vice president for commercial planning, explained on Monday. Cebu Pacific reported a 23.6-percent drop in profit in the first half of 2018 as it cited higher fuel costs and the weaker peso.

Airlines were also wary of how higher prices could affect passenger volume, however, Lao noted that “so far, demand continues to be strong.”

The CAB had previously noted that the fuel surcharge was an option for the airlines and that it could be reduced or increased further depending on the price of jet fuel.

The surcharge will be based on the previous two-month average price of jet fuel. The next revision will happen in early November this year.

The fuel surcharge was scrapped in early 2015, when the average price of jet fuel fell to $52 per barrel, down 22 percent from the previous year and lower by 60 percent from the recent high of $129.6 per barrel in 2012.

According to S&P Global Platts, the price of jet fuel as of Sept. 14 this year hit $90.83 per barrel, up 28.5 percent over the same period in 2017.