Airlines irked by sudden, 'unpleasant' rise in costs

A Thai AirAsia A320neo is refuelled at Don Mueang airport. A massive hike from 20 satang to 4 baht on fuel excise tax has airline operators warning of fare hikes soon. (Photo by Boonsong Kositchotethana)

Airlines are crying foul over the sudden hefty increase in excise tax on jet fuel, which they say will inevitably lead to higher fares for flyers.

Senior executives at various Thai carriers sat down Monday to evaluate the effects caused by last Thursday's announcement to hike the tax from 20 satang per litre to four baht. The dearer jet fuel cost, spurred by the tax, will directly hit airlines which operate domestic flights, but not for international services which have tax immunity.

Three Thai major low-cost carriers (LCCs) -- Thai AirAsia, Nok Air and Thai Lion Air -- which together control the bulk of Thailand's domestic flights, had their key people working together to thresh out a common stance over the issue, according to industry sources.

Insiders at Bangkok Airways also confirmed that executives at the full-service airline deliberated on issues related to the tax increase, which jacked up the price to around 17-18 baht a litre.

Sources said the three LCCs intend to release a statement Tuesday on their reaction to what they described as a punitive tariff that may put the brakes on domestic air travel demand and affect the tourism industry.

"The tax hike came so suddenly and with a big bang, catching us totally by surprise," an airline executive told the Bangkok Post on condition of anonymity.

Higher fuel prices will weigh down airlines' efforts to expand their businesses by offering attractive low fares, the executive said.

The tax increase quickly went into effect on Wednesday after being approved by the cabinet on Tuesday.

Somchai Poolsavasdi, director-general of the Excise Department, told reporters the tax hike would contribute 4 billion baht to national coffers this year. According to the official, the excise tax on jet fuel had stayed at 20 satang a litre for a long time, drawing comparisons with diesel fuel, which is taxed at six baht a litre, though both serve the same purpose as fuels.

The higher excise tax will reinflate fuel as a major cost for airlines after shrinking in the past year due to a decline in global oil prices. For instance, Thai AirAsia saw fuel as a percentage of its total production cost drop to 28% in the first nine months of last year, from 36% for the whole of 2015.

Thai AirAsia consumed 3.31 million barrels of jet fuel in 2015 at 9.8 billion baht.

In the first nine months of 2016, it used 2.88 million barrels.