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Cathay Pacific

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

Move follows 82 per cent slump in first-half net profit and HK$4.49 billion loss from hedging loss on fuel

PUBLISHED : Monday, 05 September, 2016, 7:42pm
UPDATED : Monday, 05 September, 2016, 9:36pm

Passengers flying with Cathay Pacific and Dragonair to Hong Kong will have to pay a fuel surcharge of HK$109 a trip starting from September 15 after a wrong-way bet on oil prices by their parent company, the airlines announced on Monday.

Cathay Pacific Airways said the surcharge was applicable to inbound passengers only. Outbound passengers would not be subject to the policy as the Civil Aviation Department had suspended surcharges for outbound passengers in February on the back of low oil prices.

The move came after the company reported a worse than expected 82 per cent slump in first-half net profit as its passenger business was hurt by cuts in corporate travel and a HK$4.49 billion loss from placing wrong-way bets on fuel prices. The hedging tactic aimed at minimising the unpredictable nature of fuel costs locked the carrier into higher prices.

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“The decision to reintroduce the fuel surcharge overseas follows the practise currently adopted by other airlines in many of these markets,” the company said. “All itineraries originating from the city will not be affected.”

Cathay Pacific and Dragonair passengers were already hit in August with an airport departure surcharge at Chek Lap Kok ranging from HK$70 to HK$180.

According to the airlines’ website, the HK$109 charge will apply to flights to Hong Kong from the Southwest Pacific, including Australia and New Zealand, North America, Europe, Africa, the Middle East, and South Asia, starting from Thursday next week.

Other flights including those between New York and Vancouver will be subject to a surcharge of HK$24 per journey.

However, inbound flights from the Philippines will be exempted. The fuel surcharge on Hong Kong-bound flights from Japan will not take effect until October 1.

The move to resurrect the fuel surcharges came as a surprise as the two airlines had saved a significant amount of money on fuel, according to Cathay Pacific Airways’ latest financial report.

Fuel costs, which made up 29 per cent of the company’s total operating costs, decreased 31.9 per cent, or HK$4.02 billion, in the first half this year compared with a year ago, thanks to low international prices. Oil prices have halved since 2014 and are still hovering below US$50 a barrel.

Passenger fuel surcharges are meant to allow airlines to “partially recover higher operational costs arising from volatile fuel prices”, according to the Civil Aviation Department.

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An aviation analyst from a European bank who asked not to be named said the airlines’ first-half profits were significantly affected due to the suspension of the fuel surcharge on outbound passengers in February.

“[The introduction of the fuel surcharge] will definitely help grow Cathay Pacific Airways’ revenues,” he said, as roughly half of their flights originated from outside Hong Kong.

But he said the move would hurt the airlines’ competitiveness, as their rivals were not likely to follow suit.