Surge of fuel surcharge charges

THE fuel price hikes have caused a slew of events to unfurl as crude for July delivery traded as high as US$140 a barrel at press time. The cross section of the industry is definitely feeling the brunt.

Some airlines have resorted to cutting flights, discontinuing selected services and delaying new aircraft deliveries. Passengers, meanwhile, are downgrading travel class or reducing number of trips. As expected, the fuel prices are impacting yields for the travel agents.

Said Judy Lum, group VP, sales and marketing, Tour East, “We are re-enforcing cost-saving measures, re-evaluating contracts done 12-months ahead where government subsidies for fuel were in

force. For our office in Indonesia, we are seeing our fuel costs going up by at least 30 percent. It is a micro and macro approach to contain rising costs. And, yes, it affects yield in some offices and actually erodes the profit for others resulting in operating losses.”

While some have started increasing their transaction fees to keep up with rising operating costs, Tour East is currently maintaining their fees to help their clients control their cost. Lum said, however, that they have “intentions” to change their rates for the winter schedule, which other DMCs are also planning to do. “The intention is there but we are considering the effect on our clients as their packages, brochures are priced for summer and fall. We are looking at the price adjustments for the winter programmes to give our clients enough time to make amendments to their prices,” she said.

Fuel price hikes certainly have affected leisure travellers. Some may consider alternative destinations due to budget constraints. Fuel surcharges are a separate component and are not part of the bundled tour packages’ price.

Travel and tour operators are doing what they could to buffer the impact.

“We are trying to do all we can to at least maintain or even lower prices where our tour packages are concerned, especially with our upcoming SA Travel Fair in late July. We are trying to see how best to adjust according to market demands yet woo in the crowds. Well, travel is certainly a part and parcel of life these days, as urban city-dwellers work hard for their money, they ought to reward themselves and unwind with a deserving holiday!“ said Ruth Lim, manager - Marketing & Communications, Sino-America Tours.

Destination management companies are among those affected the most. Said Lum, “As DMCs, we are hit the hardest as the tourist attractions, transportation companies and F&B establishments will affect price increases citing fuel costs within short notices. But for inbound agents, it is a challenge to get our overseas principals to accept the increases within short notices. Many of our principals, especially in the wholesale segment, are committed to their published selling prices printed in their brochures based on our initial costs.”

Agents in the Philippines cited that the fuel surcharge has been hitting them on all fronts – domestic, outbound and inbound. Jose Clemente III, president of the Philippine Travel Agencies Association cited, “Our members’ margins for profit have been diminishing because of them. Travel agencies are hostage to the situation and there is not much they can do. They have been adjusting rates weekly just to stay competitive.”

For inbound, the impact is immediately measured by the suddenly-low number of passengers coming in. For instance, he said that Rajah Tours, of which he is the president, recently received a group from the US whose size had noticeably dwindled compared to the original advice.

Malaysia has seen a 41 percent increase in petrol sparking off waves of protest around the country. Profits are expected to be impacted as business slows down. Ngiam Foon, president of the Malaysian Association of Tour and travel Agencies said, “As travel agents, we can only pass on these increased charges. Our earnings remain unchanged but with lower sales our profits will be affected. On our ground transportation services, with the latest 40 percent fuel increase effective today, we are studying the market responses before we react. Whether there are any more increases in near future and how the competition is dealing with the price hikes.”

These hikes will force many passengers and travellers to rethink on their lifestyle and hence will impact the travel industry.

Said Ngiam, “The key to survival is to be super efficient in the way we do our business and its not easy with all the changes in the market place still not fully settled. The changes include the effects brought about by the increased LCCs and continued disintermediation due to online channels. I think we can expect to see more consolidation of travel businesses and exit from this industry.”

Could it still be too early to gauge the actual impact which will depend on how travel suppliers react to it, and also whether there will be another round of increase within the same year.

Summed up Lawrence Koay, managing director, Tour East-Malaysia, ”Obviously we have to recost some of our services which involve land transportation and at the same time look at how we could optimise usage of our fuel base resources. The increase in diesel price is too steep for the tourism industry as most large vehicles like minibuses and coaches run on diesel. We hope the government can offer rebates for commercial tourist vehicles for a year to cushion our forward commitments.”

Other agents see blessings indirectly tossed along their way. “On our expenditure side, we continuously look at how we can work more efficiently to control cost. The introduction of 100 percent e-tickets from June 1, 2008 will reduce the number of dispatches,” said Peter Choo, managing director of Global Travel in Singapore.

For the meantime, there seems to be no respite from the increasing fuel surcharge. Will the market eventually get used to the situation?

Clemente said that unlike the initial reaction to the threat of global terrorism, which people eventual learned to live with, fuel surcharge hits much closer to home. “It is affects personal income. And people have to prioritise necessities first over luxuries. It is not just a matter of getting used to it.”