Will No Fuel Surcharge REALLY Mean Cheaper Flights?
Hate all the surprise charges and fees tacked on to your piso fares? We have some good news for you. As of January 2015, you won’t have to worry about fuel surcharges any more. Because the price of oil has been falling, on January 8, the House of Representatives issued a resolution ordering airlines operating in the Philippines to remove their fuel surcharge from airfares. Airlines have been charging a fuel surcharge since 2011 because of high oil prices, but now that oil prices have dropped, groups have called for the removal of the charge, and now, it’s finally happened.
Cebu Pacific removed fuel surcharges on January 9, Philippine Airlines on January 10, and on January 26, AirAsia made an announcement as well. “We believe removing the fuel surcharge and reducing travel costs will be a huge boost to the tourism industry,” AirAsia Group Chief Executive Tony Fernandes said in a statement.
But before you book your tickets, do you know what the removal of the fuel surcharge really means for your wallet?
Cut to the chase — will this mean cheaper flights?
Well, yes and no.
Yes because that’s one less fee for you to pay — for now. Look at the price of a round trip for Clark to Hong Kong on Cebu Pacific without a fuel surcharge:
With a fuel surcharge, you would have been paying upwards of P2,000 additional for this flight, making a total of around P8,000. In some cases, the fuel surcharge was even more than the base fare! Without it, all you have to pay for are the base fare, taxes, and web admin fees. You could end up saving a lot. In this case, you save about 25% your airfare.
HOWEVER, the profit margins of airlines on each passenger are already razor-thin. Globally, airlines only make US$5.42 (P238.62) per passenger, according to Tony Tyler, CEO of International Air Transport Association (IATA).
So if they lose the fuel surcharge, they’re going to find ways to make up the difference — by charging you more in base fares. “The carriers are jacking up flight prices to compensate for the “removal” of fuel surcharges,” writes Brad Tuttle for Time. “They’re giving travelers a price break with one hand while taking more money away from customers with the other.”
For example, Qantas, the Australian carrier, basically said that they won’t be passing on the benefits of lower oil prices to their consumers in the form of lower airfares. “The Qantas Group … will move to gradually restructure its international tariffs so that fuel surcharges are absorbed into base fares,” a statement on their website says. Their ticket prices remain the same even as fuel surcharges are removed.
Meanwhile, Emirates, Dubai’s flagship airline, are still considering whether to cut fuel surcharges — but they’ll also review their entire pricing structure, so customers may not see much benefit even if they do cut the surcharge.
This may also be the case with Philippine and Southeast Asian carriers. ”Last year in Southeast Asia, airlines faced an unsustainable situation with low fares and high fuel prices. Fuel costs may have come down but fares remain low. Ticket prices need to be higher for airlines to make money,” Brendan Sobie of aviation consultancy CAPA has said.
Once the carriers get around to restructuring their whole fare matrix, the amount you save may not be as large as you’d expect. For example, Virgin America said that coach passengers can expect a decrease of around AUD$40 (P1,392) on tickets between the US and Australia — which is nice, until you realize that the surcharge was around AUD$680 (P23,660).
So if you were hoping for your total ticket prices to drop, don’t hold your breath.