Airlines seek rise in fuel surcharge

Business and leisure travellers may have to pay more to fly with Hong Kong's top two airlines, as soaring jet fuel costs prompt them to seek relief through special surcharges.

Hong Kong Dragon Airlines and Cathay Pacific Airways have asked the Civil Aviation Department (CAD) for permission to extend for three more months the existing fuel surcharge. Both airlines are also thought to have asked for the levy to be raised.

'Like all airlines, Dragonair is facing heavy cost pressures from the persistently high price of oil,' a Dragonair spokeswoman said.

'To help mitigate the impact, we have submitted a request to the CAD to extend and adjust a temporary fuel surcharge on our passenger routes.'

A Cathay spokeswoman said the airline had applied for an extension past November 1.

A Cathay executive later confirmed it had also asked the department for a surcharge rise.

'Every airline is suffering terribly with oil prices where they are and it appears their fuel-related costs are going to continue to rise,' said Peter Negline, a regional transport analyst for United States investment bank JP Morgan.

'We don't expect them to be slow to add surcharges in this environment.'

The price of a barrel of jet kerosene traded on Tuesday in Singapore, the region's benchmark index, dipped slightly to US$62.60. But it had risen 27 per cent since September 1 and few pundits expected the downward trend to be sustained.

In May, the department allowed Cathay to raise its fuel surcharge 35 per cent on long-haul flights to US$19 per leg, and by 40 per cent on regional flights to $7 per leg.

A similar increase this time would see local travellers flying with Cathay paying surcharges of HK$203 for long-haul and $77 for short-haul flights. Dragonair's fuel levy surcharge per leg would rise to a little less than $60 from $42.

While the first tranche of surcharges had little meaningful impact on travel demand in Asia, it may not always be the case, according to CLSA transport analyst Kevin O'Connor.

'Once the surcharge becomes about 3 per cent of the ticket price, it becomes relevant - especially to leisure travellers,' Mr O'Connor said.

Strong demand in Asia for air travel had mitigated some of the impact from higher costs, but carriers say the surcharge only partially covers the higher cost of fuel. And, due to regulatory restrictions, airlines such as Cathay can only implement the levy in 80 per cent of the markets they serve, according Mr O'Connor.

Giovanni Bisignani, director-general of the International Air Transport Association, summed up the despair airlines are feeling globally.

'We are well placed to achieve 14 per cent passenger growth this year with a 3 per cent reduction in non-fuel unit costs,' Mr Bisignani said.

'The sad story is that, despite these improvements, the bottom line is worsening with the extraordinary price of fuel.

'If current fuel price levels persist, losses may well exceed the US$3 billion to $4 billion previously forecast for this year.'