[openfly]

@ Marlow1971
The falling fuel price won’t help BA in the near future to reduce their costs. They have stated so often recently that they forward buy their fuel and can’t take advantage of the lower fuel price, so sad. This is the reason that they cannot reduce the fuel surcharge!! In fact, they are now telling us that instead of buying one year ahead they have, recently, been buying their fuel two years ahead. Oh my what an awful mistake, I feel so sorry for them.

We might have to wait up to two years to see the fuel surcharge start to reduce. Also, poor BA won’t be able to announce massive profits due to the savings in the lower fuel prices. We really should fell sorry for them…poor lambs!

[greyhawkgeoff]

openfly, the subject of fuel hedging has been covered at length on this forum. A simple commercial decision whether to protect your costs against nasty surprises or run substantial cost risks.

Some years ago Ryanair got it wrong and their CEO admitted such.
At their last half presentation in November

http://corporate.ryanair.com/docs/corp/investor/present/H1_results_2015_presentation_update.pdf

they advised that they were 90% hedged for their Financial Year 2016.

Good prudent management on their part and on the part of IAG, or speculators? What would you do if you were the CEO of an airline? Have a crystal ball?

[Tom Otley]

… an interesting article on this in the WSJ this month (though a subscription may be necessary to read…)

European Airlines Miss Full Benefit of Lower Fuel Costs

Hedging Contracts Have Locked Carriers In to Paying Higher Prices
By Robert Wall

LONDON—Many European airlines are seeing little benefit from the sharp fall in jet-fuel prices since early September, because hedging contracts have them locked in to paying higher prices.

http://www.wsj.com/articles/european-airlines-miss-full-benefit-of-lower-fuel-costs-1414426256?KEYWORDS=airline+hedging

[openfly]

@Siteadministrator….

Thanks but I am totally confused. If that’s the case, why are the airlines and the financial markets already trumpeting that the airline industry will expect the best profits ever “due to the large drop in fuel prices” over the next year.
There’s a forked tongue speaking somewhere!

[Tom Otley]

Yes, maybe, though I suppose it comes down to how much each airline hedged…. and as I understand it, the idea isn’t to make a killing, but to ride out the ups and downs, which means taking your medicine when it goes wrong.

So they find themselves 40 per cent hedged. So buying 60 per cent at the new low price, but paying over the odds for that 40 percent. (or the proportions could be the other way – 60 percent hedged….)

http://www.businesstraveller.com/discussion/topic/Oil-Prices?page=2

[PeterCoultas]

With ref to fuel surcharge was there not talk recently of legislation to force airlines to include all charges other than gov taxes in to their fare?

[LuganoPirate]

CNBC had an interesting report on US airlines and their hedging, though no one would say what strategy they actually used. On average they were 40% hedged and while this is costing them hundreds of millions they are still making a few billion from the unhedged purchases.

[LuganoPirate]

CNBC had an interesting report on US airlines and their hedging, though no one would say what strategy they actually used. On average they were 40% hedged and while this is costing them hundreds of millions they are still making a few billion from the unhedged purchases.

[canucklad]

I’m going to put it another way, this whole fuel surcharge and hedging excuse from the airlines is an exercise that involves mirrors, smoke, garden paths and us being led up said paths.
I’ll challenge any airline CEO to admit to purchasing lower cost fuel and preparing in the future to reduce the fuel surcharge or in BA’s case their “carrier imposed charge”?
And surely, the fuel surcharge should be less if you depart from Dubai than London but it’s not ?
Ex- LHR= £154.50 & Ex DXB = £156.71

[travelworld2]

Canucklad 0952 +1

Does anyone know of any other industry where said fuel surcharges are the norm?

[SimonS1]

Canucklad – re the last paragraph – bit of a myth that Avgas and Jet A1 is cheaper in Dubai I’m afraid. Much of the aviation fuel produced there is refined from oil imported from Iran and Qatar, and the facts show that it isn’t always cheaper.

http://tmdg.co.uk/misc/fuel.php

In fact fuel prices vary dramatically from country to country (and even airport to airport) depending on taxes, volumes etc. You couldn’t have a separate fuel surcharge for every refuelling point.

The easiest way forward would be to force airlines to include direct costs like fuel in their headline price. However unless all governments acted together then certain countries would be at a competitive disadvantage.

Any in any case how would airlines be able to rip off passengers on FF redemptions if it wasn’t for the bogus charges?

[PeterThompson4]

problem is that 747-800 was still 60’s technology which is why LH are retiring theirs way earlier than normal……..

[MrMichael]

I am figuring the reason the airlines do not put the so called fuel surcharge in with the fare is it will leave them unable to change it. If fuel prices were to rocket at some point, the airlines want the option to increase the fuel surcharge, including after purchase of the ticket. If it was included in the ticket, they would be stuck with the fare paid.

[travelworld2]

I’d have thought they’d be stuck with the fare paid in any event. Do airlines T and Cs enable them to levy an additional charge once a fare has been paid in full?

[openfly]

@MrMichael The main reason that BA is desperate to retain the fuel surcharge as high as possible is because of the add-on to Avios bookings.

The fuel surcharge makes Avios bookings profitable. Should it be removed or reduced then BA will have to rethink the Avios flight charges/taxes.

BA will use every excuse in the book to retain their ridiculously high fuel surcharge. If they make it part of the fare, then they have a problem with Avios free tickets!

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