Airfares in both local and international destinations are expected to increase in July and August this year due to the rise in jet fuel prices, according to Civil Aeronautics Board (CAB)
In an advisory dated June 17, 2019, the CAB said the fuel surcharge will increase from Level 2 to Level 3 starting July 1 to Aug. 31, 2019.
Carmelo Arcilla, CAB executive director said based on evaluation period of April to May, the price of jet fuel averaged at $82.96 per barrel with the US exchange rate of 52.19 for the same period. This is equivalent to P27.24 per liter which corresponds to Level 3 of the passenger fuel surcharge matrix.
The fuel surcharge matrix ranges from level 1 up to level 7. Airlines impose level 1 if the fuel is more than P21 per liter and less than P24; Level 2 is when fuel reaches P24 per liter to less than P27 per liter and it will increase to level 3 if the fuel prices reach P27 to less than P30 liter.
“Airlines wishing to impose or collect fuel surcharge for the same period must file its application with this office or on before the beginning of effectivity period with fuel surcharge rates not exceeding the stated level. For fuel surcharge to be collected in equivalent currency, the applicable conversion rate for the same period is $1 to P52.19,” CAB said.
The fuel surcharge matrix is published by the CAB every 12 months and is revised as necessary.
Surcharges are suspended once the price of average jet fuel falls below P21 per liter.
The applicable fuel surcharge is determined based on the two-month average of jet fuel Mean of Platts prices in its peso per liter equivalent and is fixed for two months.
The applicable fuel surcharge is evaluated every two months.
The jet fuel cost is the largest expense by an airline operator.
Volatility in fuel costs culminating in recent price spikes prompted airlines to adopt two actions: increase revenues by applying fuel surcharges and iron out volatility by adopting increasingly complex hedging mechanisms.
Fuel surcharge helps airlines offset part of their operating cost in which fuel bills contribute the most.( M. Iglesias, Malaya)