Cathay Pacific to Increase Fuel Surcharges

Cathay Pacific has been notified by the Civil Aviation Department of Hong Kong that it has been granted approval to increase its passenger fuel surcharge.

The approval has been granted for an increase in fuel surcharges, for a two-month period effective 1 August 2008, to US$29.60 (HK$231) for short-haul services in South and North East Asia and US$118.50 (HK$924) for long-haul services.

Cathay's current surcharges are US$21.90 (HK$171) for short-haul services and US$91 (HK$710) for long-haul services.

Even with the latest increase, the airline estimates that surcharges cover less than half of the increased cost of fuel. Soaring jet fuel prices are posing an enormous challenge to the aviation industry. Jet fuel costs now account for about half of the Cathay Pacific's net operating costs, compared with 39% a year ago.

The airline issued its second-ever profit warning earlier this month, in which it said its financial performance was being materially and adversely affected by the high price of jet fuel, with the average price paid in the first half of this year 60% above that paid in the first half of last year. The most recent spot price for jet fuel was at double the average price paid in 2007.

Despite the recent drop in crude oil prices, jet fuel prices are still very expensive and higher than the levels when fuel surcharges were last adjusted two months ago.

A Cathay Pacific spokesperson said, “There is a significant time lag of two to three months from the time we submit our fuel surcharge application to the CAD to the time the new surcharges become effective. For example, the supporting information we submitted earlier this month to the CAD was based on average jet fuel prices in May and June since the last review.

“Also, the difference between jet fuel and crude oil prices had widened dramatically in recent months because of additional refinery costs, limited refinery capacity and persistent demand.”

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