Oil price.

[CXtreme]

Oil price falls below $28 a barrel, or less than the cost of an actual barrel | Business News | News | The Independent (http://www.independent.co.uk/news/business/news/all-the-things-that-cost-more-than-a-barrel-of-oil-including-a-barrel-a6818786.html)

[Average Fool]

But we got the good oil..

[asianeagle]

Just remind me how much we paid for our "good oil'???

:ugh::ugh::ugh:

[tiger321]

Does anyone know why Cathay are still allowed to charge a fuel surcharge?

Surely the public should not be paying for their little "oil gamble" disaster!

[Arfur Dent]

Knowing what lengths our gallant "Leaders" will go to in order to save a penny, it's quite amusing to think how they plan to explain, excuse, ignore, or simply not mention the elephant in every room that is "Fuel Hedging". Also, losing face is absolutely against all principles of "Business in the Far East". However it is spun or whitewashed, this is an enormous tactical blunder on many different levels. One of our biggest costs has more than halved in real terms except our own genius gamblers have artificially kept us paying historical figures for however long the contracts last.
"It's always been done this way and stabilises our planning" they bleat.
Why don't we put the gear down at 20 miles and "stabilise our approaches?"
We could always allow full throttle to keep the speed up for ATC!
Now fuel's going to $18 a barrel (cheaper than water and - some say - the barrel itself!!) so keep shutting down an engine to save it as you taxi in.
We must do our bit……………:D

[Heathrow Harry]

Fuel surcharge, what fuel surcharge? - BBC News (http://www.bbc.co.uk/news/business-35311224)

Remember the fuel surcharge imposed by the airlines when oil prices started to rise? Now with oil at a 12 year low, below $30 a barrel, how can airlines possibly be hitting passengers with a surcharge for jet fuel? The point is they aren't.

But before you crack open the champagne and book a quick flight off to the Maldives - those surcharges haven't gone away.

They're just not for fuel any more. They're for - well it's not quite clear what they are for, apart from maintaining profit margins at the airlines.
To recap: the surcharges were introduced as a way for the airlines to distance themselves from the rising cost of oil, in the same way that they itemised government taxes on their bills.

Travel writer Simon Calder explains: "It was a way for the airline to say "this is nothing to do with us - don't blame us for the price rises".

Even when oil prices began to fall, for a while fuel surcharges were still acceptable because the airlines had hedged, buying much of that oil when the price was high. "And let's not forget the oil price is paid in dollars and the dollar has been very strong over the last year," he adds.
That has meant that savings have been slow to come through. The International Air Transport Association (IATA) (http://www.iata.org/pressroom/pr/Pages/2015-12-10-01.aspx) reckons the final hedges which locked airlines into higher than market oil prices will unwind by mid-2016.

Even so, as the oil price raced downwards, the surcharge became virtually impossible to defend. And, more important, the regulators were not going to let the airlines hoodwink their passengers.

In 2012 the US Department of Transportation had ruled: "When a cost component is described as a fuel surcharge … that amount must actually reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier". So bit by bit the fuel surcharge has disappeared.

Has that meant fares have come down? IATA's chief economist Brian Pearce says: "In 2015 air ticket prices on average still fell by around 5% (adjusted for exchange rate changes) and we expect similar reductions in 2016. "That's a substantial reduction because at the same time airlines are seeing the costs like labour and airport charges going up."

The end of the surcharge?

But the interesting point is how the airlines have removed the surcharge.
Some airlines like Qantas and Virgin Australia did get rid of it altogether and absorbed it into their basic fare early last year. Many of the budget airlines, such as Ryanair, boasted that they never had a fuel surcharge in the first place. A few held on to it, most notably in Japan where it is strictly regulated, and accurately reflects the falling cost. So the fuel surcharge for a JAL flight from Japan to Korea at the beginning of 2015 stood at 1,000 yen (£5.80; $8.40). A year later and it has sunk to 300 yen.

But many of the other airlines simply removed the fuel surcharge and replaced it with something different, often described as a "carrier imposed surcharge". What that means is not exactly clear.

For instance BA's explanation of the charge is as follows: "Carrier imposed charges were introduced in October last year in response to a variety of factors. "These include changing industry practices and to be consistent with changes that have been in place for flights originating in the USA for a number of years."

Lufthansa is slightly more illuminating. It introduced an "international surcharge" in 2014. Spokesman Boris Ogursky says: "The surcharge covers costs beyond our control such as air traffic control fees, emissions trading scheme payments and so on. It is important for the customer to compare the overall cost of the flight with other airlines. The total fare is steered by market competition - it's not just us making up surcharges and putting them up and down as we like. It is a highly competitive marketplace."

In some respects the name of the surcharge is irrelevant. As Simon Calder says: "You could call it a uniform charge if you want, and you can say it's to cover the cost of uniforms, it matters not a jot. It is just another way of charging the passenger."

However, it does matter to frequent flyers. In general, frequent flyer points can only be redeemed in exchange for basic fares. Surcharges and government taxes, with some exceptions, have to be paid for with cash. So, by framing a large chunk of the fare as a surcharge, airlines can protect that income from discounts and loyalty scheme claims. The bottom line could come as a bit of a shock to a frequent flyer eagerly queuing up to redeem points to buy a British Airways round trip to New York, say. If they leave early this Saturday and come back on Wednesday, they will be faced with a total fare of £523.55.

Of that £155 is government taxes. No chance the frequent flyer points (known as Avios to BA customers (http://www.avios.com/gb/en_gb/about-us/terms-and-conditions)) will pay for that. £163 of the fare is the carrier imposed surcharge. The points won't pay for that either - unless there is a special offer available. In the end the points will pay for just £205 of the £523.55 fare. The frequent flyer (not the points) ends up paying the rest.

[212man]

Surely airlines hedge fuel prices, so the cost of oil today is irrelevant.

[Oval3Holer]

Cathay Pacific to lower agent's commission - TTG Asia - Leader in Hotel, Airlines, Tourism and Travel Trade News (http://ttgasia.com/article.php?article_id=26523)

Cathay Pacific to lower agent's commission
Prudence Lui, Hong Kong, January 19, 2016

STARTING April 1, Cathay Pacific will cut ticketing commission from five to three percent. While the application is still pending approval, travel agents in Hong Kong have already been advised of the changes.



A spokesman from Cathay Pacific said: “Travel agents have long been and remain an important partner for airlines. We will continue to work closely with travel agents to explore new ways of generating business.

“We will continue to review the cost and effectiveness of each distribution channel to ensure the best way to reach out to customers, and one new business model is the introduction of a fee-based scheme.”

Dannia Cheung, general manager, Morning Star Travel Service, said: “As a national carrier, it sets an example for other carriers to follow. We can’t do anything (about it) but try to promote air tickets with hotels and tours rather than just selling tickets.”

Eastrip Travel’s managing director, George Ng, criticized the move as it would further undermine profit. He said: “Nearly half of all existing carriers, such as China Airlines, pay five percent. Cathay Pacific’s decision provides a good excuse for others to trim. I hope the industry will unite to exert pressure on them.”

According to IATA resolutions, airlines have the right to fix their own commission rates, as long as the rate is not zero, explained Joe Ng, general manager, Air Canada.

“Whenever a travel agent provides a service to the airlines, they should pay a fee to the agent. But there is no rule on the percentage, whether front-end or back-end,” he added.

Japanese airlines to cut fuel surcharges as oil prices slump | The Japan Times (http://www.japantimes.co.jp/news/2016/01/19/business/japanese-airlines-cut-fuel-surcharges-oil-prices-slump/)

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

[Average Fool]

I can't wait to hear the rhetoric about cutting costs when the oil prices start to rise again.

[The FUB]

Good case for a small fleet of -8i s.


On the other hand.
Follow the money, who are CX hedging through?
Guess we'll be hedging at historic highs for the rest of the decade.
Meanwhile, a shell company based in a tax have and owned by a Swire subsidiary will be making healthy profits.

[valhalla634]

Very good question FUB about the other side of the contract. Is this info available as CX is a listed company on the HK Stock Exchange?

[Arfur Dent]

That's a £1Billion/ $US1.6B loss through 2018 directly attributable to fuel hedging.

Nice one geniuses.

"But we always did it that way….."
FFS:{

[mngmt mole]

And yes, I am certainly going to now worry about saving a 100kg of fuel. What an utter joke. Oh, and i'm even more likely to care when I read that Delta pilots are getting 2 1/2 months profit sharing, plus a 14% pay rise. This company is suffering an utter disconnect from the market realities.

[chuboy]

Hedging is always a gamble though, like insurance. Airlines who've hedged at a price lower than the spot price will have had it save their skin. And if you hedged today, only for Saudi and Iran to go to war next month with a corresponding jump in oil price - well the shareholders will be calling the management masterminds for their impeccable foresight.

As for why Cathay's hedge contract doesn't allow them the option to pay the spot price for Jet-A1, well that is where the management/legal team might deserve criticism.

[A-GPS]

More year end shares because the oil is cheap company earns money, hee hee.
:ok::E

[Average Fool]

Well at least CX has hedged its employee wages and CoS

While other airlines employee groups enjoy increases above inflation and better work rules, we continue the wage stagnation and attacks on our CoS to "remain competitive".

[BalusKaptan]

SCMP headlines this morning, Fuel surcharges completely dropped as of 1 Feb 2016.

[Heathrow Harry]

"Surely airlines hedge fuel prices, so the cost of oil today is irrelevant."

they do but the cost of the hedge goes up steeply as the time gets longer as the provider of the hegde is taking greater risk

Most airlines hedge when they think the price is going to rise so there hasn't been much roll-over busienss since about September 14 - the old hedges are unwinding and not many people see a sudden rise

It's a lot more complex than that in reality as you play games with how much cash you're willing to "invest" in a hedge cp your dividends/fares etc

[BalusKaptan]

HKG Gov/CAD decide price of fuel dropped to the point surcharges no longer required. Obviously not within their cambia that the Fuel Hedging Gurus of CX got it so drastically wrong.
Seems that not enough of the right sort of baksheesh provided by CX to control the bureaucrats this time. Never mind, can blame Contract Compliance for that as well!