AirAsia Scraps Fuel Surcharge Amid Lower Oil Prices

January 27, 2015 – Malaysia-based airline AirAsia, citing falling global oil prices, scrapped its fuel surcharges yesterday across all its carriers, including the long-haul AirAsia X.

Group chief executive officer Tony Fernandes said the airline decided on the move in November.

“We are only able to implement it now, but we believe removing fuel surcharge and reducing travel costs will be a huge boost to the tourism industry,” said Mr Fernandes, whose budget carrier was confronted with its biggest crisis last month after flight QZ8501, with 162 people on board, crashed into the Java Sea during a flight from the Indonesian city of Surabaya to Singapore.

Oil prices are currently below US$50 per barrel after six months of decline, and airlines are under pressure to pass on the savings to passengers. Earlier this month, Virgin Australia and Cebu Pacific in the Philippines scrapped their fuel surcharges.

Aviation analysts pointed out that AirAsia’s decision came as no surprise, given that its rivals had already made similar moves. Temasek Polytechnic’s aviation lecturer Priveen Raj Naidu said: “Every dollar saved on overheads and fuel goes back to the passenger in the low-cost carrier model.”

Mark Clarkson, Asia-Pacific business development director at industry consultancy OAG, believes that more airlines could hop onto the bandwagon and cut or scrap fuel surcharges. However, he said some carriers might have hedged their fuel, to ensure fixed prices for their future consumption. This reduces the impact of volatile market prices, but results in airlines losing out on falling prices.

Based on past reports, Singapore Airlines (SIA) hedged about 65 per cent of its fuel consumption for six months starting last October.

In response to TODAY’s queries, an SIA spokesperson said fuel surcharges are under constant review, and any changes will be announced once they have been decided. “It should be noted that while fuel prices have come down in recent months, the fuel surcharge continues to provide only partial relief against high operating costs from the price of jet fuel,” he added.

AirAsia’s move could be a marketing ploy to gain a larger market share, said Nanyang Technological University economist Walter Theseira. “Dropping fuel surcharges or lowering prices allows you to advertise to the public that you’re passing on lower prices to them. At the end of the day, consumers should make decisions based on the cheapest fare for the kind of aircraft they’re flying in,” he said.

AirAsia first abolished fuel surcharges in 2008, but spiralling oil prices prompted the group to re-introduce the charges in 2011.