Fuel Surcharges Lose Credibility With Low Fuel Prices, Invite Government Intervention

Airlines like fuel surcharges because:

  • Changing the fuel surcharge in a market can raise or lower every ticket price in that market, no need to re-file every single fare.
  • They allow an airline to raise price even with many fixed-fare agreements.
  • And, of course, because they can be charged to frequent flyers trying to redeem a captive points currency.

US frequent flyers — who don’t participate in mileage programs based outside the US — don’t have to deal with fuel surcharges very much.

  • American adds them to awards on British Airways (and to a very modest extent on Iberia)
  • Alaska adds them to awards on British Airways
  • Delta adds them to awards on some partners – like China Southern and China Eastern – and to travel originating in Europe.

United doesn’t add them at all.

But for European programs, and those based in Asia Pacific, they can be huge — hundreds of dollars each way. The idea is that miles cover the fare only and the frequent flyer has to pay taxes and surcharges.

They generally make economy travel redemptions foolish, as you spend points and have to find availability, don’t earn miles, and still wind up paying much of the cost of a paid ticket.

Several programs like British Airways, Virgin Atlantic, and Air France have at least reduced fuel surcharges on either economy and/or short haul award redemptions.

Despite the decline in jet fuel prices, fuel surcharges — ostensibly ‘temporary’ fees meant to cover the ‘unprecedented’ cost of fuel — haven’t gone away. Indeed, some airlines are a bit embarassed to call them that now though. so they’ve just renamed them. (Here’s why airfares don’t fall in lock step.)

When you put out the narrative that part of your price is driven by the cost of fuel though, and that narrative gets eviscerated by the facts, it’s difficult to maintain without angering your customers. And when the public gets angry, politicians are there.

Goodness knows part of me cheered that class action suit against British Airways over the fees.

Now the Australian government looks to weigh in.

The Australian Competition and Consumer Commission (ACCC) is casting an eagle eye on petrol pricing and is about to apply the same scrutiny to airline fuel surcharges.

While oil prices have plunged almost 60% cent since June and are currently at levels not seen for over five years, the fuel surcharges Qantas, Emirates and Virgin apply to international tickets have not shifted.

…ACCC chairman Rod Sims says the ACCC is trying to work out whether the airlines have engaged in deceptive or misleading conduct. It’s not against the law to introduce a surcharge – but it’s against the law to mislead customers, Sims points out.

The piece suggests that Qantas introduced a fuel surcharge in 2004 when oil hit AU$44 a barrel. The amount was AU$15 per segment. Now a Sydney – London economy ticket adds AU$285.

Qantas, it seems, needs to make the switch to ‘carrier imposed surcharge’ nomenclature right away — to avoid the claim that they’re deceiving consumers.

Fortunately you can reduce fuel surcharges when booking awards from some regions.


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. I have never seen a good explanation as to why this is all even legal in the first place. What are they doing besides lying about their prices?

  2. Well, what about baggage fees. Didn’t they arise in the first place due to the skyrocketing price of fuel? That was the justification. So now that oil is under $50 bbl why are those fees still being charged?

  3. @DaveS
    a) Why would adding a fee to a voluntary product/service be illegal in the first place?
    b) They don’t lie about their prices.

  4. Ho hum.

    Even if won, it’d be a pyrrhic victory, as the airlines will simply rename them. Flyers win the battle and lose the war.

  5. Still deceiving regardless of what the airlines call it. They market free tickets, therefore the ticket should be free of any fees/charges outside of taxes and other local imposed fees (airport, local regulators charges, etc).

    It is pretty funny how you could be paying almost the same fare plus 50-100K miles for an award ticket in coach when the base fare is only $10 bucks.

    Who gets screwed the most here are the corporates who has a contract with the airlines as surcharges are excluded from the discount. Therefore, when an airline’s operating costs drop, they barely see any additional savings as the surcharge remains constant.

  6. It also allows the airlines to avoid paying travel agents/companies commission as fuel surcharges are not commissionable!

  7. If governments cannot collect taxes on surcharges, it wouldn’t surprise me to see them going matter the airlines! It seems pretty clear that it is a way to shield revenue from taxes when very clearly consumers are paying for the airline’s direct cost of doing business which should be reflected in the ticket prices.

  8. Generally it is deliberate deceit so they can bury stuff under “taxes and fees”. Most people don’t look carefully in there to see the taxes are usually a minor part. Further they assume those fees are somehow government mandated, when it’s just accounting trickery. The next layer of it, is they can call the part of the fare before surcharges the “base fare” on which they calculate rewards.

  9. This is all about a lack om competition. Let’s see what happens when the regulators begin forcing airline to give up slots to upstart budget carriers and even force them to fly certain routes. That would be interesting.

  10. Hey Gary,
    I am genuinely curious what other airline you meant to mention that has reduced these surcharges in the statement:

    “Several programs like British Airways, Virgin Atlantic, and British Airways have at least reduced fuel surcharges on either economy and/or short haul award redemptions.”

  11. Wow.

    These comments could make the post go off the rails very badly. And I will take Gary’s commentary about my own accuracy in stride.

    For starters, there are numerous “taxes” which get paid to governments, airport authorities, etc., often as proxies for user fees. The UK is particularly aggressive on such fees. Other “surcharges” can include close in ticketing surcharges, use of agent surcharges, baggage surcharges, and, yes, “fuel surcharges”. Of these surcharges, a fuel surcharge is typically the only one which is mandatory (Others can be avoided by not using certain ancillary services such as checked baggage). As such, only fuel surcharges are considered, in substance, part of the taxable fare. That is, taxing authorities charaterize a fuel surcharge as part of the fare for tax purposes, but ancillary services (use of agent surcharges, bag surcharges) are characterized as non-fare additional services just like the $9.00 one pays for a crappy snack box on the plane.

    Nor do I find the smallest nexus between the practice of imposing fuel surcharges and lack of competition.

    As for the nomenclature “fuel surcharge”, I indeed find it deceptive. Airlines which charge such surcharges insinuate that such surcharges are a risk sharing device, which in substance they are not. In counterpoint, when I go deep sea fishing in Alaska, booking months in advance, many skippers provide that they will charge a surcharge pegged to the price of marine fuel on the date of the charter – a classic risk allocating arrangement.

    I posit that airlines will voluntarily or by government action apply a new name to these annoying charges, maintaining them in substance.

  12. I still haven’t heard an explanation as to why it is legal to offer a product and then split its price between a “base” amount and an unavoidable “surcharge” amount. I understand that in the U.S. on paid tickets it is in fact no longer legal to advertise a fare without the “surcharge” included, so that it becomes an accounting gimmick with respect to taxes, commissions and the like, not an actual additional hidden cost to the consumer. I also understand legitimate optional “fees” (I can choose not to pay them by declining the service), “fees for services” such as shipping and handling (it isn’t free to send the item from the warehouse to me) on merchandise orders, and government mandated taxes (which we generally despise but have to pay).

    If people are being enticed to join programs, spend money to accumulate points, choose flights, and the like based on promises of “free” flights, but the customer has to pay something other than government mandated additional amounts, it should be regarded as fraudulent advertising, and should be illegal. Normally I wouldn’t hold up Brazil as the paragon of enlightened government, but in this matter it absolutely is.

  13. I have always thought that fuel surcharges were ethically debatable, and probably nefarious; after all, if the prices to produce a product rise, we simply expect the price of the product to rise, right? Prices go up for a component of a computer, the price for the computer rises; same for the price of gas with taxi fares. And so on.

    Fuel is a necessary part of an air ticket, and should not be separated. If the airlines want to recover more of their fuel expenses, raise the price of the damn ticket.

  14. A simpler solution would be to do like in Brazil: you have the ticket price and you can only add the airport taxes. The final price remains the same. It doesn´t matter how the ticket price was built (base fare + fees + surcharges).

  15. Rrgg, it’s Ben Edelman here. I’ve been following the ACCC’s investigation with interest. But I haven’t been involved. Incidentally I don’t think there would be a “US DOT complaint to the ACCC” — that mixes US and Australian enforcement agencies.

  16. Sorry. I worded that poorly. I meant to say that the complaint that’s already been made to the US DOT may contain data or arguments that are also useful to the ACCC.

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