APPENDIX F

Letter of 19th September 1997 to the Chief Executive
tendering advice on the Administration's review of
school passage arrangements

19th September 1997

The Honourable TUNG Chee Hwa
The Chief Executive of the
Hong Kong Special Administrative Region
of the People's Republic of China
Chief Executive's Office
Hong Kong

Dear Sir,


Review of School Passage Arrangements

We have been invited by the Administration to advise, under Clause 1(e) of our Terms of Reference, on its proposal to introduce a School Passage Allowance for officers to procure air tickets for their eligible children.


BACKGROUND

2.Under the existing arrangements, officers of all ranks appointed before 1st August 1996 (excluding staff on Model Scale 1 and on temporary terms of service) are eligible for Overseas Education Allowance (OEA) to subsidise education of children in their country of origin and, for officers appointed on local terms of service, for their children's education in the United Kingdom only. OEA recipients are entitled to Government sponsored passages on commencement and cessation of education and for the purpose of visiting parents in Hong Kong during the period of overseas education. Officers appointed after 1st August 1996 are no longer eligible for OEA and school passages.


SCHOOL PASSAGE ARRANGEMENTS

3.The main features of the current School Passage arrangements are as follows -

(a) eligible officers are provided with air tickets purchased on their behalf by the Treasury. Air tickets are provided at the cheapest available Economy Class without stopover;
(b) an eligible officer may claim air tickets for up to a maximum of four dependent children. For a local officer, the minimum qualifying age for the child is 9 and the maximum is 21;
(c) for each 12-month cycle, a child aged under 19 is eligible for two return air tickets and a child aged between 19 and 21 one return ticket; and
(d) booking of tickets is done exclusively through either British Airways (BA) or Cathay Pacific Airways (CX) as stipulated by the Air Passage Agreement made between the Government and these two airlines.


AIR PASSAGE AGREEMENT

4.Since 1958, the Government has entered into an agreement with BA giving it the exclusive right to carry all Government officers and children of eligible officers for school passages between Hong Kong and the United Kingdom. The Air Passage Agreement (APA) was modified in 1980 to allow CX also to carry Government sponsored passengers on the same route. The APA was revised on 14th April 1992 whereby all duty and school passages were covered exclusively by the Agreement. It also provided that officers taking standard leave passages on the UK route could make use of contract fares. The APA guaranteed the use of Advance Purchases/Special Excursion (Apex) fares for school passages on the UK route, without the restrictions normally applied to those fares (i.e. no penalty for cancellation/no show, one-year instead of 3-month validity). As for duty and school passages on non-UK routes, the published fares would be used. The APA may be terminated by giving six months' notice.


PROBLEMS

5.The current school passage arrangements have been criticised by staff for being too rigid. The contract fare under the APA for a return ticket on the HK-UK route (about 98% of school passages are taken on this route) is more expensive than fares commonly available in the market. With the increasing number of new direct and indirect routes between HK and UK in recent years, the Government is under pressure to widen the choice of airlines, routing and frequency of flights by allowing eligible officers to use promotional fares in the market.

6.In the Director of Audit's report on the provision of air passages by the Government, published in 1996, it was pointed out that the provision of school passages under the APA had resulted in substantial additional expenditure to the Government because cheaper fares available in the market could not be used. Based on information obtained in mid-1996 by the Director of Audit, the average non-published fare on the HK-UK route was much lower than the contract fare under the APA. The Director of Audit recommended that the Administration should explore the feasibility of using cheaper market fares and work out alternative arrangements for providing student travel. The Audit recommendation was endorsed by the then Legislative Council which also recommended that the Administration should critically review possible arrangements to provide student travel to achieve cost savings.


THE ADMINISTRATION'S PROPOSALS

7.In the light of these comments and with a view to obtaining better value for money, the Administration considers it opportune to terminate the APA and to relax the existing rules governing the operation of School Passages to allow staff a free choice to purchase air tickets at market fares. The Administration, therefore, proposes that the existing arrangement for providing air tickets should be replaced by a more flexible arrangement of a School Passage Allowance.

8.The key features of the Administration's proposals are as follows -

(a) Introduction of a School Passage Allowance
In place of tickets arranged by the Treasury, a School Passage Allowance (SPA) will be provided to recipients for purchasing air tickets themselves. The rate of the SPA will be set at 75% of the published student fare or, if such is not available, of the lowest applicable Economy Class published fare for the respective routes. For a child below the age of 12, the rate of the allowance will be reduced by 25% in line with the normal discount rate offered to special fare air tickets in the market. An officer may buy any type of air tickets from any airline/travel agent. The ticket can be single or return; direct or indirect; with or without stopover, provided that it covers Hong Kong and the child's place of study. Payment can be effected either by direct payment to the airline/travel agent through the Treasury or by reimbursement to the officer.
(b) Allowance for each eligible child
The amount of allowance for each eligible child is determined by the number of return air tickets the child is entitled to, depending on age. For illustration, if "Y" is the new allowance for one return air ticket, the amount of allowance for children of different age groups will be as follows -
Age Group Amount of Allowance per 12-month cycle
between 19 and 21 "Y"
between 12 and 19 2 x "Y"
under 12 (2 x "Y") x 75%

The SPA will be credited to a child's school passage account at the rate prevailing on the commencement date of the first trip in each 12-month cycle or the cycle starting date, whichever is the later.
(c) Future adjustment
The SPA will be adjusted annually in April according to changes in air fares, as measured by the year-on-year change in air fare prices within the Composite Consumer Price Index (CPI) for the 12-month period ending February. In the Administration's view, the Composite CPI in respect of air fares, which takes into account both published and non-published air fares, reflects accurately the market price of air tickets.
(d) Double-deduction rule
Under the existing arrangement, passage is provided for either the officer or the spouse to visit their child(ren) in education overseas and that six points (which is equivalent to one return passage) will be deducted from each child receiving education in the country visited by the parent, as if each child has taken a return school passage. Under the new proposal, this double deduction rule and the restriction on the use of the school passage by only one parent will be removed. The actual cost of the air ticket(s) taken up by the officer and/or his spouse will be deducted from their child(ren)'s SPA account, and in the case of an officer having more than one child receiving the allowance, deduction will be made from the account of one child only.
(e) Balance carried forward
At the end of a cycle, a child may carry forward to the next cycle any unspent balance of the allowance, subject to a maximum equivalent to the child's total entitlement for that cycle. Currently, only up to 6 unused points (i.e. equivalent to one return passage) may be carried forward from one cycle to the next.


Apart from the above, the other arrangements for the proposed SPA are basically an adaptation of the existing rules and practices.

STAFF CONSULTATION

9.The Administration's proposals have been put to the central staff consultative councils for consultation. The councils generally supported the proposal but expressed concern about possible difficulties in purchasing tickets during peak seasons. The Administration is of the view, however, that the amount of SPA proposed for the majority of students patronising the HK-UK route should adequately cover the general market fare for a direct flight during peak seasons. Moreover, as there is a wide choice of direct and indirect flights operated by the many airlines, the Administration does not anticipate major problems for parents in purchasing air tickets.


FINANCIAL IMPLICATIONS

10.The Administration envisages an annual savings of about $17 million based on the 1996/97 School Passage figures which involved 8,646 return air tickets, of which 98% were on the HK-UK route. The additional administrative work which would arise from the proposals would be absorbed within existing resources.


IMPLEMENTATION

11.The Administration intends to give notice to terminate the Air Passage Agreement in December 1997 and to implement the School Passage Allowance proposal in mid-1998.


COMMISSION'S VIEWS AND RECOMMENDATIONS

12.We see no objection to the Administration's proposal to scrap the air ticket arrangement which was the subject of criticism by the Director of Audit and a source of complaint from staff. The proposed School Passage Allowance is a reasonable and welcome alternative. It will enable eligible officers to maximize their benefit through making use of the variety of air tickets available in the market. The proposal will also help to achieve cost saving. These are no doubt changes in the right direction.

13.By relaxing the existing rules governing the operation of the air ticket arrangement, specifically, by allowing recipients to purchase air tickets for journey on stopover flights and by removing the double-deduction rule making it possible for families with more than one child to benefit, in a cumulative way, more than families with only one child, the new proposal may, it appears, result in more benefits for some civil servants than are allowed for under the existing arrangement.

14.To allay our concern, the Administration reassures us that the situation we envisage may not necessarily arise and that it would not be reasonable to prohibit students from taking flights with stopovers for three main reasons -

(a) the proposed allowance, pitched at 75% of the cheapest published Economy Class fare, may not be able to cover the cost of a direct flight passage especially during peak seasons;
(b) with the termination of the Air Passage Agreement and the discontinuation of guarantee of seats from the airlines, parents may not be able to secure a direct flight passage for their children bearing in mind that 85% of students take school passage travel on the same few days during peak seasons of the year. Under such circumstances, parents will have to arrange indirect flights for their children and such flights normally allow stopover; and
(c) the alternative of prohibiting prolonged stopovers could involve much administrative work and incur additional costs.

15.The Administration concedes that under the proposed arrangement, families with more than one child will benefit more than families with only one child. However, the Administration thinks that this needs to be seen in perspective. Based on statistics in the past six years, officers taking advantage of school passages only have an average of 1.2 children receiving school passages; and in the past two years, only 1.2% of the annual 9,000 return passages were taken by parents. The Administration feels that a little flexibility should be given to staff to secure their support to change the present arrangement with which they are entirely content.

16.We have carefully examined the Administration's response. Having regard to all relevant considerations, our consensus view is that notwithstanding our initial misgivings, the Administration's proposal could be supported. The Administration's proposal may not be a perfect one, however, by satisfying the aspiration of staff and by bringing about immediate cost saving, it is a definite improvement on the existing arrangement. If, in implementing the proposal, a little flexibility is built into the new scheme, this, balanced against the untenable situation of maintaining the status quo, is still a worthwhile course to pursue.


CONCLUSION

17.In conclusion, we support the Administration's proposal to terminate the Air Passage Agreement and to replace the current School Passage arrangement with a School Passage Allowance as set out in paragraph 8 above.

 

Yours faithfully,


(Sidney Gordon)
Chairman
for and on behalf of
Members of the Standing Commission
on Civil Service Salaries & Conditions of Service

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