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Cathay Pacific

Passengers should not be forced to cover bad bets by airlines

The decision by Cathay Pacific and Dragonair to impose fuel surcharges on inbound passengers will only hurt their competitiveness

PUBLISHED : Monday, 19 September, 2016, 12:50am
UPDATED : Monday, 19 September, 2016, 12:50am

The fuel surcharge imposed by airlines is something that gets passengers hot under the collar. Together with an array of airport fees and charges, they sometimes account for a significant share of the ticket price. Thankfully, the levy on outbound flights is no longer allowed in the wake of falling oil prices.

It is therefore bad news that Cathay Pacific and its subsidiary Dragonair are reviving the surcharge on flights to Hong Kong. The decision came after a slowdown in business and wrong-way bets on oil prices resulted in an 82 per cent slump in net profits in the first half of this year. But the HK$109 levy will not apply to trips originating from the city, as the Civil Aviation Department has suspended the charge on outbound flights since February.

Like their overseas counterparts, the Hong Kong carriers have resorted to fuel price hedging to stabilise operating cost. While it helps reduce exposure to volatile and potentially higher fuel costs, it is essentially a bet on future price fluctuations . With crude oil prices plunging sharply over the past two years, those who locked in prices at high levels have suffered. In the case of Cathay Pacific, billions of dollars have been lost.

HK$109 surcharge for Cathay and Dragonair passengers flying into Hong Kong after wrong-way bet on oil prices

A fuel surcharge is meant to compensate for spiralling fuel costs. It makes no sense to revive it when prices are falling. After all, the company is responsible for its business strategies and decisions, be it good or bad. Passengers can be excused for feeling victimised by the company’s mistakes.

Champions of free market economics may argue that passengers are free to choose what suits them most, as there is no shortage of carriers flying into the city. But the airlines’ business may suffer further if travellers turn to other carriers as a result. Outbound travellers already have to pay an Airport Authority levy to offset the cost of the construction of the third runway. The airlines’ charge on inbound passengers will amplify the impact.

Competitiveness is everything in the aviation business. Some overseas carriers have given up fuel price hedging. Airlines should explore more flexible arrangements to sharpen their edge.