Cathay Pacific Airways has been notified by the Civil Aviation Department of Hong Kong on July 25 that it is one of the airlines granted approval to increase its passenger fuel surcharge.

In the case of Cathay Pacific, approval has been granted for an increase in fuel surcharges, for a two-month period effective August 1, 2008, to US$29.60 (HK$231) for short-haul services in South and North East Asia and US$118.50 (HK$924) for long-haul services.

The current surcharges are US$21.90 (HK$171) for short-haul services and US$91 (HK$710) for long-haul services. Even with the latest increase, the airline estimates that surcharges cover less than half of the increased cost of fuel.

Soaring jet fuel prices are posing an enormous challenge to the aviation industry. Jet fuel costs now account for about half of the Cathay Pacific's net operating costs, compared with 39% a year ago.

The airline issued its second-ever profit warning earlier this month, in which it said its financial performance was being materially and adversely affected by the high price of jet fuel, with the average price paid in the first half of this year 60% above that paid in the first half of last year. The most recent spot price for jet fuel was at double the average price paid in 2007.

As the Civil Aviation Department (CAD) has pointed out, despite the recent drop in crude oil prices, jet fuel prices are still very expensive and higher than the levels when fuel surcharges were last adjusted two months ago.

A Cathay Pacific spokesperson explained: "There is a significant time lag of two to three months from the time we submit our fuel surcharge application to the CAD to the time the new surcharges become effective. For example, the supporting information we submitted earlier this month to the CAD was based on average jet fuel prices in May and June since the last review."

"Also, the difference between jet fuel and crude oil prices had widened dramatically in recent months because of additional refinery costs, limited refinery capacity and persistent demand."

Cathay Pacific regrets the need to impose this further surcharge on passengers, but the airline reiterates that it is important to the sustainability of its business that the fuel surcharge level keeps pace with the increase in fuel prices.

Even after the latest adjustment, Cathay Pacific's fuel surcharges still lag far behind the surcharges imposed by other international airlines on comparable routes outside Hong Kong. This is confirmed by the CAD which points out that fuel surcharges on Hong Kong routes remain lower than international levels - by about 50% on short-haul routes and less than 65% on long-haul services.

Most major airlines currently levy fuel surcharges ranging from US$32 to as much as US$82 per short-haul sector and surcharges of US$150 to more than US$200 on long-haul flights are not uncommon. Some even impose surcharges of more than US$260.

Cathay Pacific's policy is to balance the interests of its customers with the need to run a cost-efficient airline in the interests of its staff and shareholders. The airline has taken a number of cost-efficiency measures to tackle increased costs and will continue to develop ways to counter the impact.