More on Why Fuel Surcharges Matter, and Why Your Free Tickets Will Soon Cost More Money

It occurred to me after writing my post on fuel surcharges yesterday that another factor driving the move towards ‘fees’ apart of ‘prices’ is <I>commissions</i>.

It’s highly unlikely that a new fuel surcharge will actually result in a higher total price paid by consumers (otherwise airlines would have already raised their prices).

Rather, fuel surcharges are a shift in the components of the price paid for airfare. Commissions (or ‘overrides’) generally aren’t paid on surcharges, just base fares. So take this simple illustration.

An airline with 100 million passenger enplanements annually charging a $5 fuel surcharge each way won’t really make an extra $500 million dollars. But it will exclude that $500 million from commissions.

Assume that the surcharge applies to only 80% of those passengers, and is paying commission on only a quarter of the passengers paying surcharges. That’s still 20 million passengers for whom $5 of their fare is excluded from commissions. $100 million. Real money.

The lession here is that small per-passenger amounts significantly effect an airline’s bottom-line. And that’s why I fully expect US airlines to begin passing fuel surcharges on to award customers (and other ‘free’ tickets including those given as denied boarding compensation).

An airline with 7 million roundtrip awards might next $70 million this way based on a $10 roundtrip fuel surcharge. That’s going to be too tempting to pass up. Mark my words.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Many frequent flyer programs already do charge fuel surcharges on awards. It is devaluation by stealth in that the points are worth less than before the fuel surcharges existed.

    Indeed on some programs, fuel surcharges on awards are higher than on paid tickets. I have seen quotes where the “taxes” on an award ticket are more than on a paid ticket for the same flight (and they want a fistful of points for the privilege). A disgusting practice.

  2. The current status of domestic fuel surcharges are not surcharges at all. They are another revenue stream for the airlines. Currently if you traveled Detroit to Flint on a 56 minute flight on a fuel efficient small aircraft called a Saab Fairchild 340 the fuel surcharge is $60.00 per direction, $120.00 roundtrip. If you travel from Detroit to Kalispell, MT with the same carrier and on a connecting flight with a total duration of 8 hours operated by operated Boeing 757’s and Airbus 320’s the fuel surcharge is $60.00 per direction, $120.00 roundtrip. If this was truly a fuel surcharge the amounts would be adjusted based on the aircraft and distance travelled!

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