Air Asia: Government Fuel Taxes Resulting in Higher Airfares for Travellers

Malaysia-based AirAsia Group, part-owner of AirAsia Philippines and AirAsia Zest, is calling on the Philippine government to remove taxes on aviation gas, which are limiting growth in the tourism sector and driving up airfares. According to AirAsia Group CEO Tony Fernandes, fuel taxes in the Philippines are the highest in Asia and getting rid of them is the only way to fuel domestic tourism. 

Image Source: Wikimedia

"I brought this up with the Minister of Finance Cesar Purisima, but I don't think he likes giving away tax dollars," said Fernandes. "I said that in some ways 'you're punishing the domestic industry because foreign airlines are part of the network that fly from Manila to Boracay.'"

An excise tax and a value-added tax are currently being levied on aviation gas in the Philippines. Due to specific legal restrictions, fuel suppliers are not able to recover these directly from foreign carriers. Instead, the aviation gas suppliers end up increasing their per-gallon fuel rate in order to recover their own costs, which results in airlines being forced to bear the brunt of these taxes. 

Since the beginning of this year, both international and local carriers have been petitioning the Civil Aeronautics Board for higher fuel surcharges to recover these added operational costs, which are directly resulting in higher airfares for travellers. 

Although recent consolidation in the Philippine air industry has improved the outlook for local carriers, many are still working hard to turn a profit. "We are still going through a tough period," said Fernandes. "We're still recovering from the grounding of the Zest Air fleet. We haven't got Senate approval yet on our Congressional franchise, so we're in a limbo. But I think we've solved 90 percent of the route network that we want to do. Category 1 was important because we're more an international airline than domestic, which is served by Philippine Airlines and Cebu Pacific."

However, Fernandes is excited about the carrier's prospects in the country especially in Kalibo where AirAsia is about to set up a secondary hub. The airline plans to trim its fleet to fourteen aircraft to "remove excess capacity from domestic routes, while building more international routes out of Manila and Kalibo." In Kalibo, the carrier plans to use the gateway to Boracay Island as a launching pad for new flights to Southern China and Korea. 

"Maan Hontiveros, CEO of AirAsia Philippines, has been doing a good job in Kalibo and I fell in love with that place. So we've put some planes there. But 90 percent of Southeast Asia don't even know about Boracay," said Fernandes. "It's a great opportunity. I'm 50 years old and I've only been there recently. So there are a lot of opportunities for us in Kalibo. The AirAsia brand is starting to become one of the preferred brands when it comes to air travel here in the Philippines."