Airlines scrap fuel charge on Hong Kong flights as oil price plunges

Dan Murphy
Airlines fuel surcharge cut is a non-event: Analyst

Boarding a flight out of Hong Kong just got a bit cheaper.

A decade-old fuel surcharge on flights originating from Hong Kong was scrapped on Monday, after the Civil Aviation Department (CAD) said falling fuel prices meant it was no longer warranted.

"Airlines will not be approved to levy passenger fuel surcharges from February 1, 2016, onwards for flights originating from Hong Kong until further notice," the CAD said in a statement.

"In view of the fact that aviation fuel prices in the past months have greatly reduced and stabilized to a reasonable level and that the corresponding fuel surcharges have been greatly reduced, the CAD considers that the levying of passenger fuel surcharges is not warranted."

A record 68.5 million passengers passed through Hong Kong International Airport in 2015.

Can airlines afford to cut fares further?

Passengers here are winners

All Hong Kong-based airlines have removed the surcharge, including flights with Cathay Pacific and Cathay Dragon originating in Hong Kong.

It earlier moves by some non-HK carriers - Malaysia Airlines, Thai Airways and AirAsia - to drop extra fuel charges.

Australia-based Qantas said it removed its fuel surcharge in the first half of 2015 and instead "absorbed" the cost of fuel into its base fare. Virgin Australia also includes fuel costs in its base fare rather than adding a surcharge.

Which airlines still have fuel surcharges?

The South China Morning Post reported that scrapping the surcharge would cut 109 Hong Kong dollars ($14) off long haul flights, while savings on regional flights would come to about HK$24. Passengers that booked tickets before February 1 for travel after that date would not have the difference refunded, the SCMP added.

Who's undecided

The cost of the aviation fuel is typically reflected in the cost of an airline ticket, but additional surcharges are sometimes permitted to help airlines recover from big jumps in operating costs due to larger than usual fluctuations in aviation fuel prices.

The Hong Kong surcharge was introduced at a time when oil prices, and thus jet fuel prices, were at their peak. But oil prices have been sliding steadily since July 2014 and are currently at their lowest point since 2012.

Yet, not all carriers will remove or cut their fuel surcharges.

China-based Air China, China Southern Airlines and China Eastern don't add a fuel charge for flights within the mainland, but still apply an extra charge on international tickets, according to reports. The Chinese airlines didn't respond to a request for comment.

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In Japan, fuel surcharges are tightly regulated. An additional charge still applies to flights leaving Japan but varies depending on the distance to the flight's destination.

Japanese carrier ANA has already dropped the fuel surcharge for flights booked or originating outside Japan. CNBC understands ANA may announce later this month that the surcharge will go completely for flights booked after April.

The losers

JAL and Garuda Indonesia still impose a fuel surcharge, according to reports.

Singapore Airlines and its affiliates lowered their surcharges in February last year but continue to apply them, while Emirates said recently it had no plan to cut its charge.

Maybank suggested in a recent report that the price of jet fuel was likely to stay low throughout 2016, and that more airlines would feel the benefit of lower prices as the year went on.

"Many airlines have yet to benefit from the lower fuel prices due to hedges," Maybank said. "But most will come out of it in 2016 on expirations and unwinding, and this will significantly reduce the fuel bill."

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