Train effect: Airlines mull bringing back fuel surcharge

By Jose Santino S. Bunachita February 10,2018

 

Many Cebuanos spend hours looking for cheap airfares to Domestic and International destinations, especially the millennials.

The hunting gets even bloodier when airlines announce that they will be having overly low fares for certain destinations in a specified period of time.
Among them is 23-year old Kimberly Faith Go.

She said she usually budgets around P2,000 for a round-trip ticket to destinations within the Philippines. Scoring a round-trip ticket of P1,000 to P1,500 for a domestic destination is already a sweet deal, she said.

Go recalled that she was even able to book round-trip tickets to Siargao and Davao for P700 each before.

“I really plan to have one International and two Domestic travels per year. But it depends if the tickets are affordable,” Go, who works as an accountant, told Cebu Daily News.

In fact, she already has a scheduled trip to Bacolod this February which she got for only P971 round trip during a promo sometime last year.

And just within January 2018, she booked a round-trip promo ticket to Hong Kong for P5,000 for August and also a trip to Manila in April, which cost her P3,000. The Manila ticket was not on promo but she said she booked it using an App which helped her avail of the lowest possible fare since there were no promo fares for this destination.

Go is fortunate that she was able to book her trips for this year before plans of some airlines to bring back the fuel surcharge they impose on tickets would be approved by the Civil Aeronautics Board (CAB).

Fuel surcharge, when it was scrapped by the CAB in 2015, ran for around a few hundred pesos for Domestic Flights. On the other hand, the rate for long-haul international flights could cost around several hundred US dollars.

Once this fuel surcharge would be implemented again, Go said she might be thinking twice before booking more trips and would just stick to cheap and promo fares.

Oil price hike, Train

Although there are still no formal announcements of petitions from airlines to bring back the fuel surcharge on tickets, many industry sources said this is expected and inevitable with the continuing oil price hikes in the world market.

At the same time, the new Tax Reform for Acceleration and Inclusion (TRAIN) law will make fuel price much more expensive as the government will be imposing higher excise tax on fuel.

Under the TRAIN law, excise tax on aviation jet fuel and aviation gas is expected to increase to P4 per liter compared to the old rate of P3.67 per liter.

Regular unleaded and premium gas will be increased to P7 per liter this year, P9 per liter in 2019, and P10 per liter in 2020; diesel and bunker fuel will be taxed P2.50 per liter this year, P4.50 per liter in 2019, and P6 per liter in 2020; while petroleum gas will be increased by P1 every year from 2018 to 2020.

A source from the industry confirmed to CDN that these two factors are greatly affecting the operational costs of airlines.

But the source said airlines are being careful before making any announcements about the fuel surcharge plans so as not to shock customers and even lose them.

’Inevitable’

Fuel surcharge on airline tickets was ordered stopped by the CAB in 2015 when the price of oil in the global market plummeted. But over the past years, this has been reversing.

An Inquirer report in late January stated that large carriers like the Philippine Airlines (PAL) are expected to ask the government’s permission to bring back the fuel surcharge – a fee which they pass on to the consumers for their aviation fuel.

PAL has not issued any statement yet while an official from Cebu Pacific Air said there was still “no view” on any move to file the petitions.

Meanwhile, AirAsia Philippines CEO Dexter Comendador reportedly said they had yet to decide on it, but they were already considering bringing back the fuel surcharge.

The same Inquirer report quoted CAB Executive Director Carmelo Arcilla saying that they are already expecting it and that a petition from airlines is “inevitable” given the higher cost of oil as well as the effect of the TRAIN law.

Global oil prices have reportedly been on the rise due to production cuts by Russia and the Organization of Petroleum Exporting Countries (OPEC).

Biggest challenge

In a press release last December, the International Air Transport Association (IATA) reported that they see continued strong airline profitability in 2018 but also cited that rising costs, especially on fuel, is the biggest challenge to profitability in 2018.

The IATA said oil prices are expected to average $60 per barrel for Brent Crude in 2018, which is 10.7 percent higher from the $54.2 per barrel in 2017. Jet fuel prices are expected to rise even more quickly to $73.8 per barrel. This is 12.5 percent higher than the $65.6 in 2017.

Fuel bill is expected to be 20.5 percent of total costs in 2018, up from only 18.8 percent in 2017.

The government allows fuel surcharge as a mechanism for airlines to help recover expenses due to fluctuating oil prices. But while it was scrapped, fuel surcharge is still allowed in some cases like for PAL flights coming from Japan.

Interim effect

With airline tickets expected to become a bit more expensive, among the first sectors to feel its effects will be the local tourism industry.
Stakeholders in Cebu tourism sector agree that bringing back the fuel surcharge will impact Cebu Association of Tour Operation Specialists (CATOS) President Alice Queblatin said that affordable travel had been made possible for people through cheaper airfare.

Queblatin said that this had been causing a steady increase of inbound and outbound travel business.

“The agents believe the re-imposition of fuel surcharge will impact on airfare; should the cost go up, consequently, outbound travel will slow down, and airfare to the Philippines may not be competitive anymore,” she told CDN.

For his part, Cebu Provincial Tourism Officer Joselito “Boboi” Costas said that there are several other factors that could affect a tourist’s decision to travel or not aside from the airfare.

Costas said flight distance, time when you purchased your tickets, and even competition could also have an effect on the overall price of airline tickets as well as the personal decision of a traveler to fly or not.

This is why, Costas said, if travelers end up not flying anymore due to “prohibitive airfare” it could mean bad business for an airline so this has to be balanced by a company.

“Maybe in the first few months of the new tax implementation (it will have an impact on local tourism). But it is really natural for people to travel especially the millennials,” he said.

The local tourism industry is also expected to get boosts from other aspects like the expected opening of the Terminal 2 of the Mactan Cebu International Airport (MCIA) in August.

The Hotels, Resort, and Restaurant Association of Cebu (HRRAC) also believes that the impact of the fuel surcharge would only be limited to the first two or three months of its implementation.

“We are positive this year that we will be having more tourist arrivals. We will experience a slight slowdown of travel after the implementation of the fuel charge. But looking at the future of this year, we have a positive outlook specially with the opening of the new airport (terminal 2) this July 2018,” said HRRAC President Carlo Suarez.

And with Cebu being one of the country’s top premier destinations, Suarez added that tourists will still continue to visit despite these adjustments.

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