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China shows the way with fuel surcharge hikes

7-Dec-2009

Carriers in the relatively protected North Asian market continue to raise their fuel surcharges. In mid-Nov-2009, the Chinese National Development and Reform Commission approved a new formula for national airlines to calculate their fuel surcharges, based on their own fuel costs.

The NDRC expects the new formula, tied to a centrally updated index of a weighted average of domestically purchased jet fuel and imported fuel (next due to be adjusted in Apr-2010), will help airline to recover “at least 20% of the increased costs” as fuel prices continue to rise.

To prevent airlines from delaying surcharge cuts, Chinese carriers are required to now suspend or reduce surcharges within five days of reductions in the price of jet fuel. If fuel drops below CNY4,140 per tonne (USD606), Chinese carriers will be required to suspend their fuel surcharges.

At least ten Chinese carriers, including Air China, China Southern, Cathay Pacific and Xiamen Airlines, raised surcharges in early Dec-2009. Surcharges on some sectors have increased by up to 50%. Air China increased surcharges on services to Singapore and Thailand from CNY200 to CNY300. Xiamen Airlines boosted surcharges from Xiamen to Singapore and Jakarta by a similar level.

However, other carriers have adjusted rates less aggressively. Cathay Pacific reportedly plans to raise surcharges on sectors less than five hours from HKD71 to HKD75, while flights over five hours will increase from HKD328 to HKD348.

Oil prices slowly retreating

Oil prices have retreated slightly from the USD80 per barrel threshold seen for most of Nov-2009. For the week to 01-Dec-2009, the underlying crude oil price rose 2.5% to USD78.39, after dropping below USD75 per barrel in late Nov-2009 for the first time in almost eight weeks. 

Stronger supply, with OPEC expected to maintain current production levels, combined with a larger than forecast US stockpile, alongside a stronger US dollar have all contributed to an easing of oil prices in recent days.

WTI spot price: Mar-2009 to Nov-2009

Jet fuel prices rose across all markets. New York Harbour and US Gulf Cost prices jumped 4% and 3.3% respectively, both topping USD200 cents per gallon. Los Angeles prices rose 2.5%. Amsterdam-Rotterdam-Antwerp exchange prices rose 3% while Singapore prices rose 0.9%.

Daily jet fuel prices (kerosene, cents per gallon) at New York, US Gulf Coast, Los Angeles, Amsterdam, Singapore: 05-May-09 to 01-Dec-09

Major oil market movements, USD cents per gallon

 

23-Nov-09

24-Nov-09

25-Nov-09

27-Nov-09

30-Nov-09

01-Dec-09

one week Change

12 month Change

New York Harbor

197.1

193.98

198.2

196.2

199.6

205

4.0%

21.1%

U.S. Gulf Coast

196.35

195.95

197.45

195.42

200.4

202.75

3.3%

24.2%

Los Angeles

203.85

199.95

204.57

203.54

206.65

209

2.5%

31.2%

Amsterdam-Rotterdam-Antwerp

198.66

197.83

202.52

199.72

203.73

204.71

3.0%

27.1%

Singapore

203.33

201.67

200.36

 

201.43

205.12

0.9%

32.3%

WTI Spot

76.49

74.88

77.25

75.95

77.19

78.39

2.5%

58.9%


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