Cargo Fuel Surcharge

Since the temporary suspension of fuel surcharges in early 2016, CAD had been monitoring the movements of fuel prices and reviewing the regulation on fuel surcharges and had engaged a consultant to conduct a consultancy study on the regulation of fuel surcharges. The initial findings of the consultancy study released in early 2017 concluded that there was a global trend of liberalization of fuel surcharges to enhance competition and recommended that the CAD take a similar approach to fuel surcharge regulation. CAD subsequently conducted a further review on the way forward for fuel surcharge regulation in the long run. Pending the results of the further review and considering that the oil price had 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 and in response to the concerns of the industry, CAD in March 2017 agreed to implement a time-limited arrangement of allowing airlines to levy cargo fuel surcharge based on the Cargo Fuel Surcharge Mechanism for flights originating from Hong Kong from April 2017 to end-2019.

In the light of the challenges faced by the cargo industry in implementing the new cargo security screening requirements by mid-2021, coupled with the prolonged trade activities amongst major economic powers that created great uncertainty to the normalcy conducive to the development of a healthy and competitive transportation environment for air cargo, the CAD considered that on an exceptional and one-off basis, there is merit to extend the current regulated cargo fuel surcharge regime to help the cargo industry to gear up for the full implementation of the new screening requirements. Taking into account the opinions from various stakeholders, the CAD announced in July 2019 that the time-limited arrangement for airlines to levy cargo fuel surcharge based on the current Cargo Fuel Surcharge Mechanism of the CAD for flights originating from Hong Kong will be extended to the end of June 2022 from end 2019. The CAD maintains its outlook to the progressive liberalization of tariffs to promote and ensure competition in air transportation.

From 1 July 2022, individual airlines may, based on their commercial considerations, set cargo fuel surcharge at a level based on their own circumstances or choose not to levy such surcharge.

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 (updated on 1 June 2021)

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 1.1
61 to 65.99 0.4 1.5
66 to 70.99 0.6 2.0
71 to 75.99 0.7 2.4
76 to 80.99 0.8 2.8
81 to 85.99 0.9 3.3
86 to 90.99 1.1 3.7
91 to 95.99 1.2 4.2
96 to 100.99 1.3 4.6
101 to 105.99 1.4 5.0
106 to 110.99 1.6 5.5
111 to 115.99 1.7 5.9
116 to 120.99 1.8 6.3
121 to 125.99 1.9 6.8
126 to 130.99 2.1 7.2
131 to 135.99 2.2 7.7
136 to 140.99 2.3 8.1
141 to 145.99 2.4 8.5
146 to 150.99 2.6 9.0
151 to 155.99 2.7 9.4
156 to 160.99 2.8 9.9
161 to 165.99 2.9 10.3
166 to 170.99 3.1 10.7
171 to 175.99 3.2 11.2
176 to 180.99 3.3 11.6
181 to 185.99 3.4 12.0
186 to 190.99 3.5 12.5
191 to 195.99 3.7 12.9

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 12 November 2021)

The Prevailing Oil Price in October 2021 for determination of the cargo fuel surcharge for December 2021 is US$83.54/Barrel. The maximum levels of fuel surcharge for December 2021 will be increased to HK$0.9/kg for short-haul flights and HK$3.3/kg for long-haul flights respectively.

Cargo Fuel Surcharge Levels of Previous Months