The so called fuel surcharge

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This topic contains 14 replies, has 9 voices, and was last updated by  FlyingChinaman 15 Dec 2010
at 17:55
.

Viewing 15 posts - 1 through 15 (of 15 total)

  • Anonymous

    travelworld
    Participant

    Am I alone in wishing that airlines, insteading of solemnly announcing increased fuel surcharges, simply put the fares up? After all, a “fuel surcharge” is a fare increase by any other name. They can always reduce fares if the fuel price falls….


    VintageKrug
    Participant

    The reason this is done is that corporate deals and redemptions are reduced/free for the fare aspect, whereas the surcharges are constant regardless of the ticket. As the fuel and taxes element is a fixed “charge”, upon which the airline doesn’t (ostensibly) make a profit, it doesn’t seem unreasonable if this is broken down, as long as the total cost of the ticket (including surcharge) fare is quoted throughout the booking process (which it is).

    There may also be accounting reasons for this distinction.

    Oil has risen significantly over the past few weeks, so this is not a random increase, and indeed is likely to increase exponentially in the coming years as the global economy picks up once again.


    travelworld
    Participant

    Thanks VK- At least I now understand why they do it.


    FrequentTraveller
    Participant

    I find this practice annoying as well.

    Keeping it as a “fuel surcharge” means they also get to collect money from miles redemption bookings too. So yet another revenue stream.

    Which has the affect of undermining the value of miles and there perceived benefit. By passengers still have to pay taxes and “other charges”, which in the past were part of the ticket price.


    FlyingChinaman
    Participant

    My travel agency told me that one of the reasons for airlines piling up higher fuel charges to passengers instead of increasing the fares is there is no commision paid to the travel agency on the fuel surcharge!
    Second reason is the fares would looked lower and more likely for the passengers to purchase the ticket until all the surcharges popped up and at that point most passengers would succumbed to the higher total price. Lastly it may be more difficult and takes longer to get approval from the authority.

    They (the airlines) have it all worked out. I remembered BA made a huge profit from the fuel surcharge a couple of years ago!


    VintageKrug
    Participant

    BA did not “make a huge profit” from the fuel surcharge.

    There was some evidence of industry-wide fuel surcharge price fixing, for which a fine was paid (on a different evidential basis), but the subsequent trial collapsed in a fiasco, with evidence being presented that no criminal collusion had taken place:

    http://www.bbc.co.uk/news/10104556

    There may be the potential for profiting from fuel hedging, and many airlines have done OK on this front, but as with any hedge, sometimes they will profit other times they will not; it is only really about helping out with short term cashflow.

    I don’t see anything wrong with the fuel surcharge on redemption tickets; some airlines charge for an extra bag, on board drinks etc. and in the scheme of things these charges usually stack up to about the same amount. While the charge on redemptions may be perceived to devalue the value of frequent flyer miles, the alternative would simply be to charge more miles (and I think some airlines do allow you to use miles to offset the fuel/taxes); as for many people miles are harder to come by than cash, and there is a clear relationship between the cost of flying an aircraft in fuel terms and the fuel surcharge, this is a solid business model.

    I agree it should always be bundled into the price quoted, and BA does this from the very start, unlike other airlines which load the surcharge on at the end, which isn’t very transparent at all.


    CMBurchhardt
    Participant

    It’s not just the fuel surcharge; it’s all the other surcharges. The airlines seem able to add to these surcharges without explanation. Superb model if you can get away with it.


    ANDREWYOUNG1
    Participant

    It does seem ridiculous that fuel is a ‘surcharge’ surely it is just an operating cost along with everything else, would a shop apply a ‘heating surcharge’ to goods? Fuel should be included in the fare and only actual government levied taxes added on as an extras.


    VintageKrug
    Participant

    Imagine if the surcharge was included in fares.

    Would you expect the mileage redemption amounts to change every few months to compensate for the marginal increase (or decrease – fuel surcharges do come down from time to time>>!)?

    Should BA renegotiate their corporate deals every time fuel spiked?

    Fuel is one of the largest components of an airline’s cost base, and while you can protect yourself to some extent by buying your leisure tickets far in advance of travel, this is not really possible for business travellers.

    Oil has been exceptionally erratic over the past few years; the graph below (Brent Crude, but I can’t be bothered to find a specific Aviation fuel chart) gives you an understanding of the huge swings, with oil doubling in the past twelve months, you can vary the period by clicking the drop down on the right:

    http://www.moneyweek.com/news-and-charts/market-data/oil.aspx

    Airlines cannot simply absorb these costs, and in the same way other domestic suppliers you use (for your car, heating in the case of fuel, but also for other commodities like wheat for your daily bread or the vegetables which feed your family) vary the price you charge, it doesn’t seem unreasonable for airlines to vary these commodity energy/raw material costs in the same way. Splitting the surcharge/taxes from the fare itself is the fairest way to do this, and works well if the whole cost is shown throughout the booking process.

    You can see a breakdown of the surcharge between air passenger duty/environmental taxes, airport user fees and fuel surcharges on sites like Google’s ITA Matrix search.


    craigwatson
    Participant

    The problem I have is that the fuel surcharges are occasionally increased, but are rarely decreased


    VintageKrug
    Participant

    If you click on the graph I posted, you will see that oil has risen inexorably except for a brief and dramatic fall at the beginning of the recession, when surcharges did indeed come down:

    http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article4948042.ece

    This is not a function of airlines overcharging, but of an increase in the price of global commodities.


    Bucksnet
    Participant

    VK, oil is hardly rising, if at all. However its price is rising quite a lot. The difference in these 2 statements is explained by the ongoing fall in the value of the US dollar, and of course the pound and others are mostly backed by dollars.

    The value of crude oil has stayed almost exactly the same for over 100 years, it is the falling value of currencies that is causing prices to rise.


    Binman62
    Participant

    Whilst I accept that the price of oil is rising I object strongly to the fuel surcharge being apllied to mileage redemption tickets. I gained those miles as a result of buying premium fares on long haul flights that have already been surcharged. The miles are supposed to be a “reward” for my continuing loyalty. This is not an issue limited to BA but to all airlines who have chosen to treat their most loyal customers in this shoddy manner.
    Airlines are becoming more like oil and energy firms in that the price rises quickly, but rarely falls in line with the underlying price of oil.
    Tend to agree that the fare should vary and not have such surcharges. As for miles varying also…airmiles have managed to avoid this for some years now and they include all taxes fees and charges.


    FlyingChinaman
    Participant

    Binman62

    I totally agree to your thought but what can the passengers do but to yield to this unfair practice applied by ALL airlines now. Good yield for them and bad deal for the passengers!

    If you want to redeem tickets then you pay extra!!!! A form of “Airway Robbery”.

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