ANA and Japan Airline Eliminate Fuel Surcharge and Search for Alternative Fuel

January 18
7:10 AM 2016

Air Nippon Airways (ANA) and Japan Airlines (JAL) are set to eliminate fuel surcharge as oil price continue to drop to the lowest level. As a result the ticket price ticket will be reduced substantially. Both of them are also searching for fuel substitute actively.

Bloomberg reported that two analyst at SMBC Nikko Securities Inc. wrote in a report on Friday that current price of Singapore kerosene at around $35 is below the minimum level for adding surcharges. The analysts wrote, "With Singapore kerosene prices breaking significantly below the lower bound of the fuel surcharge table, we think airlines could enjoy major earnings advantages if fuel prices remain at current levels."

The fuel surcharge has added the price of ticket as much as 66,000 yen ($563) to the price of a round-trip ticket to the U.S. or Europe. As the fuel surcharge is removed, it will reduced the price significantly.

ANA Holdings Inc. is the operator of Japan bigggest airline has mentioned that if the two-month average of Singapore kerosene-type jet fuel falls below 6,000 yen for flights originating from Japan, or below $60 for flights originating elsewhere, then it won't collect a fuel surcharge. Japan Airlines Co. also sets the same limit. Macho Ito, spokeswoman for ANA told Blooomberg that the airline will announce the change to fuel surcharge pricing around mid-February and to be effective starting April.

Both ANA and JAL have already eliminated fuel surcharge on international flight in December. The fuel surcharge was introduced in 2005 by Japanese airlines as the rising oil price forces the airline to induce fuel surcharge.

Fuel surcharge is imposed to passenger to reduce the risk of rising oil price to the airline's operating cost. BBC explained that fuel surcharges were introduced as a way for the airlines to distance themselves from the rising oil cost, in the same way that they itemised government taxes on their bills.

Fuel cost has been a burden to air travel, so that airlines must find a creative way to minimize the cost. ANA has already started a plan to use a mix of biofuel made from algae with Japanese started company, Euglena. In the meantime, JAL also moved toward the same path to use alternative fuel.

JAL, according to Nikkei Asian Review, has begun working with the Japan Aerospace Exploration Agency, Toyo Engineering and other partners to build a facility to turn trash into fuel. The facility will turn hydrogen and carbon monoxide generated at a waste disposal plant in Chiba into jet fuel using catalytic agents.

As oil price continue decline even more, it is reasonable for airlines to remove fuel surcharge. ANA and JAL have decided to eliminate the surcharge since December and also searching for alternative fuel.

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