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Cargo Fuel Surcharge

Since the temporary suspension of fuel surcharges in early 2016, CAD has been monitoring the movements of fuel prices and reviewing the regulation on fuel surcharges and has engaged a consultant to conduct a consultancy study on the regulation of fuel surcharges. Based on the initial findings of CAD's consultant, it is noted that there is a global trend of deregulating fuel surcharges to enhance competition, which echoes Hong Kong's progressive liberalisation policy in the context of air services regime. In terms of whether fuel surcharges are to be de-regulated in the long run, CAD would need further study and consultation with stakeholders. The oil price has greatly increased by almost 80% from January 2016 to January 2017, which greatly impacted on the aviation industry, particularly the air cargo market which largely operates on a long-term contract basis. In view of that and in response to the concerns of the industry, CAD agreed to implement a time-limited arrangement of allowing airlines to levy cargo fuel surcharge for flights originating from Hong Kong, with a view to maintaining the competitiveness of Hong Kong's aviation industry and Hong Kong's status as an international aviation hub.

Cargo Fuel Surcharge Mechanism

Calculation of Cargo Fuel Surcharge is based on the following formula:

Cargo Fuel Surcharge =
(Prevailing Oil Price – Baseline) x Unit Fuel Consumption x Recovery rate (80%)

Note:

  • Baseline: The baseline is US$46 per barrel of Brent Oil (reflecting crude oil price). The baseline of US$46 is the 12-month average price level of Brent Oil, i.e. between February 2016 to January 2017. As the information on Brent Oil is easily accessible by the general public, using Brent Oil Price will enhance the transparency of the formula.
     
  • Prevailing Oil Price: CAD will update in the middle of each month the prevailing oil price and the corresponding fuel surcharge level to be levied for the next month. The prevailing oil price is determined from the available average daily Brent oil prices of the whole month preceding the date when it is updated on the CAD website.
     
  • Unit Fuel Consumption: The unit fuel consumption is a weighted average calculated based on the actual fuel consumption data collected from all local airlines in the past 12 months (as of January 2017), which represented more than half of cargo throughput in Hong Kong air cargo market. Fuel consumption data of airlines are commercial confidential information and are provided on a confidential basis to CAD for calculating a weighted average. CAD will review and update the unit fuel consumption every IATA Season, i.e. every six months.
     
  • Recovery Rate: A recovery rate of 80% is introduced, as per the consultant's recommendation, so that airlines are also sharing the risks of fuel price fluctuation to their operating cost.


Airlines may choose to levy a lower cargo fuel surcharge than CAD's published level or choose not to levy any such surcharge at all based on their own circumstances and business strategy. Under this Mechanism, airlines are not required to submit an application to CAD prior to the levying of CFS level which is same as or lower than CAD's published level.



A Cargo Fuel Surcharge Table at different oil price levels is constructed based on the above formula with results as follows:

Cargo Fuel Surcharge Table

Prevailing Oil Price(i)
(Average Brent Oil Price)
(US$/Barrel)

Short-haul(ii)
(HK$/kg)

Long-haul(ii)
(HK$/kg)

46

to

50.99

0.1

0.2

51

to

55.99

0.2

0.7

56

to

60.99

0.3

1.2

61

to

65.99

0.4

1.7

66

to

70.99

0.5

2.1

71

to

75.99

0.7

2.6

76

to

80.99

0.8

3.1

81

to

85.99

0.9

3.6

86

to

90.99

1.0

4.1

91

to

95.99

1.1

4.5

96

to

100.99

1.2

5.0

101

to

105.99

1.4

5.5

106

to

110.99

1.5

6.0

111

to

115.99

1.6

6.4

116

to

120.99

1.7

6.9

121

to

125.99

1.8

7.4

126

to

130.99

2.0

7.9

131

to

135.99

2.1

8.3

136

to

140.99

2.2

8.8

141

to

145.99

2.3

9.3

146

to

150.99

2.4

9.8

151

to

155.99

2.6

10.3

156

to

160.99

2.7

10.7

161

to

165.99

2.8

11.2

166

to

170.99

2.9

11.7

171

to

175.99

3.0

12.2

176

to

180.99

3.2

12.6

181

to

185.99

3.3

13.1

186

to

190.99

3.4

13.6

191

to

195.99

3.5

14.1

Note

  1. Prevailing Oil Price is the monthly average Brent Oil Price sourced from U.S. Energy Information Administration (https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=rbrte&f=m).

  2. Long haul: to North & South America, Europe, Middle East, Africa, Southwest Pacific, Indian Subcontinent

    Short haul: to other points in Asia


Airlines are allowed to charge cargo fuel surcharges according to the Cargo Fuel Surcharge Table with reference to the respective Brent Oil Price range for a given month. The cargo fuel surcharge levels for short-haul and long-haul shown in the Table are the maximum levels only. Airlines may levy a lower cargo fuel surcharge or not to levy any such surcharge at all based on their own marketing strategies and operations.

Around the middle of each month (N), the Prevailing Oil Price and the corresponding maximum cargo fuel surcharge levels that would be applicable for the following month (N+1) will be published on CAD website. The Prevailing Oil Price will be determined by CAD based on the average daily Brent Oil Price of the preceding month (N-1).

Example:

Given the Prevailing Oil Price was US$54.87/Barrel for the month of February 2017, the maximum cargo fuel surcharge allowed for April 2017 would therefore work out to be HK$0.2/kg and HK$0.7/kg for short and long haul flights respectively.



Prevailing Oil Price (updated on 14 Aug 2017)

The Prevailing Oil Price in July 2017 for determination of the cargo fuel surcharge for September 2017 is US$48.48/Barrel. The maximum levels of fuel surcharge for September 2017 will be maintained at HK$0.1/kg for short-haul flights and HK$0.2/kg for long-haul flights respectively.

Cargo Fuel Surcharge Levels of Previous Months