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Hong Kong aviation

Hong Kong airfares could soar if fuel surcharge proposal approved

Hong Kong’s aviation regulator may give airlines power to set costs in bid for greater competition

PUBLISHED : Friday, 10 March, 2017, 10:11pm
UPDATED : Friday, 10 March, 2017, 11:08pm

Passengers could end up having to pay more for flights from Hong Kong as the city’s aviation regulator announced it is considering allowing airlines to set their own fuel surcharges.

The Civil Aviation Department said on Friday it had began a 12-month review to decide whether to pass the power to carriers to set fuel surcharges and how transparent the additional costs would be.

Passenger fuel surcharges, which had added as much as HK$1,164 to the price of a long-haul ticket, were scrapped in February last year following the collapse in global oil prices. This prevented airlines from recouping some jet fuel costs, hurting airlines, notably Cathay Pacific Airways whose long-term hedging contracts did not anticipate the downturn, costing the company billions.

Following the scrapping, the CAD hired consultants to review the regulation, which concluded Hong Kong lagged behind in deregulating this area.

Fuel surcharges are a controversial cost to the travelling public who have in the past said they feel they are paying for the errors of airlines’ fuel hedging policies.

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“The CAD’s upcoming study will look at whether fuel surcharges are to be deregulated in the long run,” a spokeswoman said, adding that the overarching principle was to enhance transparency.

Passenger fuel surcharges on flights starting in Hong Kong are priced into air tickets so long as the aviation regulator authorises the charge. In the hands of airlines, local and foreign carriers could freely choose whether or not to place a charge, which could mean higher ticket prices.

It depends on how the regulator fosters a highly-competitive environment for Hong Kong so that airlines will not make use of the fuel surcharge to overcharge consumers
Gilly Wong Fung-han, chief executive of the Consumer Council

The CAD said by giving airlines the power it would be “encouraging competition” in this area therefore placing the onus on airlines to decide whether or not to place a surcharge, based on competitor airline behaviour.

Gilly Wong Fung-han, the chief executive of the Consumer Council, has led the objection to deregulation, preferring a more regulated and transparent approach to determining fuel surcharges.

“We should continue to follow the regulated approach but increase and enhance the transparency of the fuel surcharge system; how it is going to be reported, what the calculation [is], what the formula [is] and how it is going to be presented in airfares,” Wong said, who confirmed her organisation submitted preliminary comments to the CAD consultant. “Right now the criticism is there is no transparency on how the CAD regulates.”

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A spokesman from the short-haul budget carrier HK Express explained fuel surcharges are about “cost recovery and showing customers where their money is going”.

A Cathay Pacific and Cathay Dragon spokeswoman said the airline group would continue to engage with the government on the policy review.

The consumer watchdog chief said airlines could manage competition by lowering airfares.

“It depends on how the regulator fosters a highly-competitive environment for Hong Kong so that airlines will not make use of the fuel surcharge to overcharge consumers,” Wong added.