Biz heads: Cebu to take a hit from higher airline ticket costs

Tourists from Manila take a selfie at the Mactan airport in this January 2018 photo. According to tour operators, the fuel surcharge will cause airline tickets’ prices to increase and might cause Cebuano travellers to rethink and prioritize their travel plans for the future.
CDN FILE PHOTO

AIRLINES’ REIMPOSITION OF FUEL SURCHARGE

Local tour and travel operators are wary over the recent decision of the Civil Aeronautics Board (CAB) to reimpose the fuel surcharge by airlines on plane tickets due to increasing prices of oil.

Cebu Tours and Travel Association (CTTA) President Alan Carvajal sees a huge impact among them, travel agencies, that cater to Cebuanos who want to fly out to other destinations in the country, or internationally.

“The overall rate of tickets will now be higher. Which means people will now re-think and prioritize their travel plans for the future,” Carvajal told Cebu Daily News in a text message.

Earlier this month, the Department of Transportation (DOTr), the CAB, had approved the petitions of commercial carriers to bring back the fuel surcharge, some of which were submitted as early as the beginning of the year.

In an Inquirer report, Transportation Undersecretary for Aviation Manuel Antonio Tamayo said the fuel surcharge, which is passed on to consumers as part of their ticket price, will likely be implemented within this month.

Higher costs

But aside from the tour operators, the business community in Cebu in general is expected to also take a hit from the higher cost of airline tickets with the fuel surcharge reimposition.

Mandaue Chamber of Commerce and Industry (MCCI) Vice President for External Affairs Steven Yu said the fuel surcharge would add to the increasing cost of doing business especially for those relying a lot on air transportation for both passenger and cargo movements.

Yu said that indirect costs would also be felt as businesses would have no choice but to pass on the incremental cost to their consumers.

“To cover up for the increased costs of air travel, businesses can maximize the concept of pooling resources; use digitalization or technology to minimize point to point physical travels; and increase sales production and output per mile of travel to reduce cost to sales ratio,” he said.

Yu also suggested that businesses could make use of land and sea transport for distances of less than 500 kilometers or as much as applicable.

But while tour operators are concerned over the fuel surcharge affecting outbound tourism, Yu said he was not expecting it to affect domestic and foreign tourism arrivals.

He said that this would be because travel had become a lifestyle especially for the millennials.

It was in 2015 when the government scrapped the fuel surcharge after global price of oil saw a sharp decline.

However, local carriers have reported decreasing sales for the year due to the higher cost of fuel affecting all their other operations.

Cebu Pacific Air, the country’s biggest budget airline, posted lower earning in the first semester of 2018. They cited the higher cost of oil as well as the weakening peso as reasons. They reported 23.3 percent decline in profits to P3.31 billion as the price of fuel jumped by 23 percent.

PAL Holdings, the operator of Philippine Airlines (PAL), also saw losses widening during the same period. From January to June, PAL Holdings said losses reached P1.4 billion compared to a loss of P1.3 billion in the same period last year.

Transparency

Meanwhile, Cebu Chamber of Commerce and Industry (CCCI) President Antonio Chiu said there must be some sort of transparency regarding the computation of the fuel surcharge so passengers would be aware if they were being charged the right amount.

“I think allowing airlines to charge a fuel surcharge is the right thing to do when fuel prices go up,” Chiu said.

“But the problem is we have no access to the way they compute the fuel surcharge, and, therefore, we don’t know whether the public is being charged the correct amount,” he added.

The fuel surcharge is a mechanism that airlines can tap to offset fuel costs. The amount would depend on the distance flown as well as the two-month average price of jet fuel.

As part of the DOTr’s approval of the petitions from airlines, the CAB has released details of the range by which ticket prices could increase due to the fuel surcharge just last week.

According to CAB, the fuel surcharge could add between P34 to P769 for a one-way domestic flight.

For international flights, the range is from P163 to as much as P9,860 for a one-way ticket.

Process

In a separate interview, Cebu Pacific Air Director for Corporate Communications Charo Logarta-Lagamon explained that airlines could not just decide the fuel surcharge on their own.

“We will apply for it with the CAB. There is a process,” Lagamon said at the sidelines of the launching of Cebu Pacific’s Juan Effect campaign in Cebu last Saturday.

Lagamon said that airlines really had to ask for this kind of temporary relief due to the higher cost of fuel and especially with the weakening peso rate to dollar.

She pointed out that transactions of airlines usually involve dollars, from purchasing aircraft to buying fuel.

She said that with the weak peso, this would mean, they would have to spend more for the same things that they used to spend less on before.

However, she assured that the fuel surcharge would just be a temporary relief and would not be imposed forever.

She said that it could be removed once fuel prices go back down.

Computation

Based on the CAB’s approved matrix, the price of jet fuel fell under a category that assumed a fuel cost of P30 to P33 a liter.

This meant that a hypothetical flight from Manila to Cebu, which is around 568 kilometers away, could cost an additional P235 for a one-way flight. On the other hand, a flight to Japan or South Korea could cost an additional P962 for a one-way ticket.

For flights bound to North America or the United Kingdom, the highest P9,860 additional fee could be charged to a one-way ticket.

The CAB had also stated that the fuel surcharge could be scrapped if the price of jet fuel would fall below P21 per liter or about $62 a barrel based on the current exchange rate.

As of August 2018, the price of jet fuel stood at $92 a barrel according to the S&P Global Platts. This is 24.5 percent higher than the price of jet fuel a year ago.