Fuel surcharges begin to fall

AIRLINES have begun
slashing fuel surcharges
as pressure mounts
from governments to drop
these charges due to lower oil
prices, but that doesn’t mean
customers will necessarily see
cheaper tickets as carriers
are likely to bump up fares to
maintain margins.
Qantas has restructured
its international tariffs to cut
fuel surcharges and absorb
the impact by raising the
base fare. This comes after
the Australian Competition
and Consumer Commission
began investigating the high
fuel surcharges Qantas was
imposing on international
flights, despite falling oil
prices.
The Philippines government
has also ruled that fuel
surcharges could no longer
be applied in light of the
recent drop in jet fuel prices.
Both Philippine Airlines (PAL)
and Cebu Pacific were forced
to comply with the new
regulation. In the UK, chief
secretary to the treasury,
Danny Alexander, has written
to major UK airlines calling
for them to pass on fuel price
savings to consumers.
Meanwhile, Malaysia-based
AirAsia has scrapped the fuel
surcharge on all its airlines.
Emirates, Japan Airlines, Qatar
Airways, Cathay Pacific Airways
and Virgin Atlantic said they
would consider reductions
but have not revealed further
details.
SA carriers
Asata ceo, Otto De Vries, says
he would like to encourage
airline partners to pass
reduced surcharges on to
their passengers. “We will be
examining the issue in greater
detail with our members over
the coming weeks to establish
what, if any, moves to reduce
the fuel surcharge price have
been taken in the SA market.”
But in South Africa, the
situation remains unchanged
with local carriers saying
hedging deals combined with a
weak rate of exchange make it
nearly impossible to drop the
fuel levy.
“The rand price of jet fuel
remains volatile and has
not seen as significant an
improvement as the oil price
alone would suggest. Despite
the fall in the oil price, the
current rand price of jet fuel at
R7,50 does not provide scope
for any significant reduction in
fares,” says Comair ceo, Erik
Venter. He says around 30%
of Comair’s fuel is hedged
at above the current fuel
price. “One also has to guard
against benchmarking fares
against pre-2011 prices.”
Jonathan Gerber, director of
TAG, believes hedging is an
excuse airlines use, saying
carriers were happy to keep
raising their fuel surcharges
and make a profit when the
oil price was high. “Now as
the fuel price comes down,
hedging is the talking point.”
Adrian Hamilton-Manns,
ceo of flyafrica.com, agrees
that many airlines will happily
increase charges and hide
these as ‘fuel costs’. “They
usually argue that they never
fully recover the fuel increase
so this is, therefore, not
gouging the customer.”
It is not possible to
generalise as airlines hedge
at different times and when
fuel prices are at different
levels, says June Crawford,
ceo of Barsa. She adds that
regulatory authorities should,
therefore, not get involved.
Linden Birns, md of Plane
Talking, says: “Each airline has
its own fuel hedging strategy,
factoring in what portions
or percentages of their
immediate, short-, near- and
long-term fuel requirements
are hedged at what price floors
and for what point in time.
The dilemma is the same
as determining when to sell
shares and take profits in a
top-performing listed company
on the stock exchange.”
Also, the oil price may begin
to rise again, and airlines
should take a cautious
approach in considering drops
in the surcharge, says Chris
Zweigenthal, ceo of Aasa. “I
think that by the second half
of 2015 we will see the oil
price trending back towards
US$100 a barrel levels. Oil
producers can’t be happy with
these low levels.”