Air Asia urges removal of fuel surcharge

Posted at 05/24/14 2:34 AM

MANILA – Malaysian low cost carrier Air Asia Berhad is urging the removal of Philippine taxes on aviation gas, which are seen curtailing the growth of the tourism sector.

In an interview on the sidelines of the World Economic Forum on East Asia Thursday, Air Asia Berhad Group chief executive Anthony Francis Fernandes, told ABS-CBNnews.com: “I brought this up with the Minister of Finance [Cesar Purisima], but I don’t think he likes giving away tax dollars. (chuckles) I said that in some ways ‘you’re punishing the domestic industry because foreign airlines are part of the network that fly from Manila to Boracay.’”

He asserted that the fuel taxes in the Philippines are the highest in Asia, “and you need to get rid of [these] because that will spur domestic tourism.”

A value-added tax and an excise tax are being levied on aviation gas and due to specific legal restrictions, fuel suppliers are not permitted to recover these taxes directly from foreign carriers. Instead, the aviation gas suppliers are forced to increase their per-gallon fuel rate to recover their own costs, such that airlines have to bear the brunt of these taxes.

Since January 2014, international and local carriers have been petitioning the Civil Aeronautics Board (CAB) for higher fuel surcharges to recover these added operational expenses, which result in higher airfare for travelers.

Fernandes was candid though about the difficulty the local unit, Air Asia Philippines, has been going through since it set up in the country. “We are still going through a tough period. We’re still recovering from the grounding [of the Zest Airways fleet]. We haven’t got Senate approval yet on our [Congressional] franchise, so we’re in a limbo. But I think we’ve solved 90 percent of the route network that we want to do. And Category 1 [status upgrade] was important because we’re more an international airline than domestic, which are more served by PAL (Philippine Airlines) and Cebu (Cebu Pacific Airways).”

Last August, the Civil Aviation Authority of the Philippines grounded planes of Zest Airways (now Air Asia Zest) for various safety violations such as a missing fuel coupling cap and refueling while passengers were on board the aircraft. This was followed by the suspension by Air Asia of its flights from Clark International Airport to Davao, Kalibo, Taipei, Hong Kong last October 9.

Air Asia Philippines currently owns 49 percent of Zest Airways, but recently purchased 51 percent for a full-controlling ownership. The airline is still waiting for Congressional approval of the purchase.

Asked if Air Asia intended to mount flights to the United States from the Philippines now that the country has Category 1 status from the Federal Aviation Administration, Fernandes answered in the negative. “Just Southeast Asia. But many people follow the States and everyone blocks you [when the US blocks you].”

The FAA recently upgraded the Philippines to Category 1 status, in recognition of the country’s improved aviation safety record. This was preceded by the lifting of the European Union ban on Philippine Airlines in July 2013, and Cebu Pacific Airways in April 2014. The Category 1 status allows Philippine carriers to mount flights to the US, and Philippine carriers already flying to the US, to expand their routes.

In a recent disclosure to the Kuala Lumpur Stock Exchange, AirAsia Malaysia said operating losses of its Philippine unit grew by 25 percent to $8 million. It added that the Philippine fleet would be trimmed to 14 aircraft to “remove excess capacity from domestic routes while building more international routes out of Manila and Kalibo.”

The carrier added that its hub in Kalibo, Aklan, which is a gateway to the island resort of Boracay, would be mounting new flights to Southern China and Korea.

Fernandes was visibly excited about the carrier’s Kalibo hub and Boracay Island. “Maan [Hontiveros, Air Asia Philippines chief executive officer] has been doing a good job in Kalibo and I fell in love with that place. So we’ve put some planes there. But 90 percent of Southeast Asia don’t even know about Boracay. It’s a great opportunity. I’m 50 years old and I’ve only been there recently. So there are a lot of opportunities for us [in Kalibo].”

It recently appointed a new chief operating officer, Joy Caneba, for Air Asia Philippines. In a press release issued on May 20, Caneba said: “The AirAsia brand is starting to become one of the preferred brands when it comes to air travel here in the Philippines. In Q1 we carried 0.89 million passengers, which grew 520 percent from just 0.14 million passengers we carried in the same quarter last year.”

According to data from the CAB, AirAsia Zest saw a 94-percent jump in international passengers to some 618,000 in 2013, while domestic passengers slipped 3.5 percent to about 2 million last year.

Overall, Air Asia Berhad’s profit after tax rose 33 percent to some RM 140 million ($44 million) in the first quarter of 2014, largely due to foreign exchange gains on its borrowings. Its operating profit slipped 11 percent to about RM 224 million ($70 million) due to its lower ticket prices.