Holidays in Japan could get cheaper as airlines set to remove fuel surcharges due to oil slump

A Japan Airlines plane at Haneda Airport in Tokyo.
A Japan Airlines plane at Haneda Airport in Tokyo. PHOTO: AFP

TOKYO (BLOOMBERG) - Japan's airlines are set to remove fuel surcharges with oil trading around a 12-year low, ending a decade of high jet kerosene costs that had added as much as 66,000 yen (S$810) to the price of a round-trip ticket to the United States or Europe.

The current price of Singapore kerosene is below the minimum level for adding surcharges, Mr Hiroshi Hasegawa and Mr Osuke Itazaki, analysts in Tokyo at SMBC Nikko Securities, wrote in a Jan 15 report. Singapore kerosene was at US$35.22 as of 4.24pm on Monday (Jan 18).

Airlines are cutting fuel surcharges as oil prices slump amid China's economic slowdown and an expected bump in supply as Iran sanctions are lifted. The surge in prices since 2004 had turned fuel into airlines' single largest cost.

"With Singapore kerosene prices breaking significantly below the lower bound of the fuel surcharge table, we think airlines could enjoy major earnings advantages if fuel prices remain at current levels," Mr Hasegawa and Mr Itazaki wrote in the report.

ANA Holdings, which operates Japan's largest airline, says on its website that if the two-month average of Singapore kerosene-type jet fuel falls below 6,000 yen for flights originating from Japan, or below US$60 (S$86) for flights originating elsewhere, then it will not collect a fuel surcharge.

Japan Airlines sets the same limits, according to its website. 

Ms Maho Ito, a spokesman for ANA, said by telephone that the carrier will announce any changes to its fuel surcharges on flights from Japan around the middle of next month, to take effect from April. 

The carrier already eliminated surcharges on flights originating overseas in December, she said. 

Japan Airlines, which also removed fuel surcharges from outside Japan in December, is reviewing the fees, Mr Yusuke Yabumoto, a spokesman for the carrier, said by telephone in Tokyo.

Shares of ANA closed down 0.3 per cent on Monday at 336.1 yen in Tokyo, compared with the 1 per cent decline in the benchmark Topix index. Japan Airlines rose 0.2 per cent to 4,357 yen.

The carriers introduced fuel surcharges in February 2005 as oil prices surged, eventually peaking at US$145.45 in 2008. West Texas Intermediate oil slumped to US$28.36 a barrel on Monday, its lowest level since 2003.

If Japanese airlines do remove surcharges, they would merely be catching up with some of their counterparts elsewhere. South Korean airlines have not levied fuel surcharges on overseas flights since last September, under a government-set formula that is adjusted every month to reflect international crude prices.

Budget carrier AirAsia, AirAsia X and all their affiliates removed fuel surcharges last January. Qantas Airways began folding the surcharge into its base ticket price a year ago, adding that its international fares would not change as a result.

In an e-mailed statement on Monday, Singapore Airlines said it regularly reviews its fuel surcharge levels, "and whenever changes are decided upon we announce them to the market". 

Singapore Air and its regional unit SilkAir lowered surcharges in February 2015.

Cathay Pacific still imposes a fuel surcharge, according to a travel advisory issued on Dec 29. In an e-mailed response, Cathay said airlines submit applications to Hong Kong's Civil Aviation Department for fuel surcharge approval each month.