CAB allows PAL to collect surcharge

Philippine Airlines on Friday (Sept. 28) got government authority to increase its international and domestic fares by $6 and P300 per flight sector, respectively, to reflect the drastic and sudden increase in aviation insurance premiums.

The surcharge will be collected on tickets sold from October 1, 2001. It will not apply to those who have already been ticketed.

PAL, however, is still awaiting approval of similar petitions from concerned aviation authorities in foreign countries where it operates.

The Civil Aeronautics Board’s decision authorizing PAL to collect the surcharge enables the flag carrier to buy the required coverage in the aviation insurance market, although at much higher premiums.

With PAL’s renewed access to commercial insurers, the Philippine government’s guarantee to provide incremental protection for any war-related third party liability incurred by the airline now becomes unnecessary.

PAL recognizes that the declaration of support by the Philippine government came at critical moment without which the airline would not have been able to operate.

The government had earlier pledged to fill the gap when aviation insurers sharply reduced their coverage of war-related third party risk, which threatened to ground the fleets of local carriers.

PAL said the $6 or P300 surcharge on ticket prices takes into consideration the costs involved in securing the required incremental insurance cover for its passengers and for its operations as a whole.

Being under rehabilitation, PAL has limited financial leeway to meet its insurance needs. The $6 or P300 surcharge will directly address this critical deficiency.

In contrast, the nominal $1.25 surcharge levied by other carriers in the wake of the September 11 terrorist attacks in the U.S. is only a stop-gap measure to reinstate a minimum amount of insurance cover needed for continued airline operations.

It, however, did not restore the required cover to its former level. These airlines were then extended the incremental cover through government guarantees, thus allowing them to avoid passing on the additional surcharge to their passengers.

With the renewed availability of risk cover in the commercial insurance market, other carriers are now expected to align their surcharges to a level that will approximate PAL’s in order to account for the more costly premiums.