At least four industry sources said they were confident the Civil Aviation Department would deregulate the setting of fuel surcharges in the next few months, giving airlines some wiggle room when oil prices rise.
The department launched a year-long review of its policy on fuel surcharges last March but when approached last week, would only say its new policy was being finalised.
Long-haul flights out of Hong Kong will be the most affected if regulation on fuel surcharges is lifted.
Upon completion of the study, the Civil Aviation Department will consult stakeholders on the proposed way forward with a view to formulating the relevant policy.
Airlines could previously charge fuel fees on passenger and cargo flights from Hong Kong but in January 2016, the aviation regulator scrapped this as oil prices fell to US$35 a barrel from a peak of US$110.
The price of oil as of last week was US$74 a barrel and the last time oil prices were at that level in November 2014.
Airlines with flights originating from Hong Kong were allowed to charge an extra HK$623 for a long-haul flight and HK$143 for regional ones.
All four airlines based in Hong Kong, including Cathay Pacific Airways, had been lobbying over the past year for the surcharge to be reinstated.
A spokeswoman for Cathay Pacific and subsidiary Cathay Dragon would not comment other than stating the airline was keenly awaiting the outcome of the review.
Budget carrier Hong Kong Express only said it advocates pricing transparency.
Competition would influence airlines, particularly Cathay Pacific, to pass on half of the fuel price increase to passengers flying out of Hong Kong.
We expect all the carriers to successfully implement the fuel surcharges, Png said, adding that airlines might grant more discounts on underlying airfares to retain their market share.
About 87 airlines fly in and out of Hong Kong.
Cathay currently adds a fuel surcharge for flights arriving in the city as this is not regulated.
Passengers pay HK$116 for regional flights and HK$516 for long-haul flights.
The reintroduction of a fuel surcharge for outbound flights would harm the city’s competitiveness as a travel hub.
The fuel surcharge mechanism just has to be more transparent so passengers know exactly what they’re paying for.
It is important for airlines to have the power to make their own decisions.
However the fuel surcharge mechanism has to be more transparent so passengers won’t be out of pocket.
Surcharge should be directly linked to the cost of oil rather than the current formula used by authorities.
The department had on multiple occasions refused to disclose its calculations on price regulations.
In launching its review last March, the department had signalled that deregulation would occur, citing the example of other countries.
It said it was searching for the best way to follow similar trends.
Cathay Pacific was caught off guard more than two years ago when the fuel surcharge was suspended.
At the time, the airline’s chief financial officer Martin Murray said the company would be lobbying hard for the reinstatement of the surcharge.
The city’s biggest airline pays for its jet fuel up to four years in advance to secure a significant portion at a slightly discounted rate from the market price of oil.
However, the dramatic collapse in oil prices saw rivals who did not hedge as much profit from lower fuel costs and pass on savings to consumers through cheaper airfares.
Four years straight of fuel hedging losses totalled a cost of HK$24.2 billion (US$3.08 billion) for Cathay Pacific, which led to the struggles of the airline in recent years.
Fuel Surcharge Policies Worldwide
Hong Kong, Japan and Brazil are among the very few jurisdictions in the world that regulate fuel surcharges.
Hong Kong
When oil prices reach a certain level, typically around US$50 a barrel, the city’s civil aviation regulator authorises a surcharge to be added by airlines to a price of a ticket.
Airlines submit a figure they think reflects the oil price and the authorities set the final price based on all airline applications. The method of calculation has never been disclosed.
Japan
A transparent system informs airlines and travellers how much extra they would pay for international flights.
The fuel surcharge cost for passengers is based on the destination and a fixed price band for oil.
Brazil
Fuel surcharges are prohibited in one of Latin America’s largest countries and economies.
This is based on the belief that fuel costs and other carrier-imposed surcharges should be covered in the final airfare price.
Fuel surcharges originating from Brazil do not exist.
Regulators maintain that the stance is fair and gives more transparency to consumers.
European Union
Any airline operating from inside the European Union is free to add surcharges but should indicate the final ticket price at the start of the booking process, including taxes, airport charges and fees.
Lufthansa and British Airways are testing a new class of airfare in Hong Kong, which may cut prices of regular economy-class tickets for flights from the city by nearly 50 per cent.
Passengers will get no allowance for check-in luggage, board last, and forfeit selection of their seats, flight times or even carriers.
We are asking the traveller to give us this flexibility and in return we give them a very attractive price.
That’s how the deal works, said Malte Haut, general manager for the Lufthansa Group’s three airline brands in Hong Kong, southern China and Macau, which include Swiss International Air Lines and Austrian Airlines.
Lufthansa is using Hong Kong as the first international market to test its concept.
Lufthansa, Europe’s largest airline in terms of passengers and British Airways are among the first traditional carriers to alter their offerings with special discounts as passengers increasingly opt for low-cost fares and no-frills service.
Working alongside its Swiss and Austrian partners, Lufthansa wants its passengers to sacrifice flexibility, such as not knowing the exact airline or flight times until a few days before departure, to enjoy cheaper fares.
The German airline giant is using Hong Kong as the first international market to test its concept.
We are asking the traveller to give us this flexibility and in return we give them a very attractive price
Malte Haut, Lufthansa
In its trial programme, Lufthansa is offering a discounted one-way flat fare of HK$2,488 (US$317) to 13 destinations, including Barcelona, Milan and Venice.
Flights from Hong Kong to Lisbon under the scheme cost HK$4,976, but using the regular Lufthansa search function, the lowest price on the same selected date was HK$9,441.
British Airways is exploring additional enticements: lower fares for no checked-in luggage, boarding last, and seating choices left to the airline.
We know that when our customers travel with us their needs vary from trip to trip, the carrier’s chief commercial officer Adam Daniels said.
We need to ensure that the fares we provide reflect those differing needs so customers can select the best option for them on that occasion.
Low-cost Norwegian Air Shuttle has emerged as one of the main challengers to traditional airlines, initially on transatlantic routes and now in Asia.
Yet despite its popularity, Norwegian is under significant financial pressure amid heavy losses from its low fares and expansion.
US carriers have rolled out similar basic-economy fares, with a focus first on domestic flights while rolling out deals for flights to Europe.
Why cheap long-haul flights could be the best deal for savvy travellers
Keen Hong Kong travellers stand to benefit from the higher number of cheaper long-distance flights.
Cathay Pacific Airways last month ruled out any immediate plans to introduce similar basic- economy fare deals that restrict typical booking options.
But CEO Rupert Hogg noted customer behaviour had been changing a lot and forcing full-service airlines to reconsider conventional pricing models.
Cathay Pacific Airways has for now ruled out introducing similar deals.
People are travelling much more frequently and for lots of different reasons, he said.
As people’s needs change and get more varied, clearly we will start looking at how best we can meet those needs.
Airlines need to be very open-minded in the current market.
With budget airlines flying long-distance routes more frequently and reaping greater success, traditional carriers were starting to follow competitors’ offerings and travel conditions with reactive pricing.
Tourism Observer
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