Cathay Reintroduces Fuel Surcharges for Some Flights
Recently there has been mixed news on this front. On one hand, Cathay is increasing passengers’ checked baggage allowance, which is very welcome. On the other hand, however, they are also reintroducing fuel surcharges on some routes. That means passengers pay more even if they are on an award not revenue ticket, as fuel surcharges apply to all types of tickets.
This may seem strange since oil prices have been fairly low lately. In fact, Cathay has incurred massive losses by hedging fuel prices – in 2015 alone the publicly reported loss was $8.5 billion, which equates to around $250 per passenger carried. Moreover the airline’s hedging contracts were significantly longer than industry norms and so they continue to be locked into multiyear hedges which will drain lots more money.
Fuel surcharges were only abolished in February, at the behest of the Civil Aviation Department, and the newly announced charges apply to Cathay itineraries originating outside of Hong Kong (flights booked in the Philippines for itineraries originating in the Philippines are also excluded). Most flights will be subject to a fuel surcharge of approximately $109 per flight sector as of now (October for itineraries originating in Japan). Fuller details are outlined on Cathay’s website here.
This has several consequences. First it means that some tickets to Hong Kong will be significantly more expensive, especially when coupled with the recently introduced controversial surcharge to fund a third runway. This will be most noticeable on lower priced economy class regional flights, as the fuel surcharge is basically levied at a flat rate independently of the journey distance or class of travel.
Secondly it suggests that Cathay continues to search for aggressive ways to improve its bottomline and that may lead to yet further reductions in service quality.
The whole episode also raises questions about the quality of Cathay’s senior management. To lose such significant sums hedging oil for years at a time is not unheard of amongst world class airlines, but it is fairly uncommon.