Why Don’t Airlines Lower Fuel Surcharges?

With oil prices down, I’ve been asked on a daily basis lately why airlines don’t lower their fuel surcharges. In spirit, a surcharge should be temporary, to reflect an additional burden.

But if you follow the way airlines impose fuel surcharges, the system seems to be that the fuel surcharges go up every time that oil prices increase, while they don’t go down when the cost of oil decreases.

Even with the cost of oil prices way down, fuel surcharges still make up the majority of fares in many cases. For example, take the below flight between New York and London, which has a $264 base fare, and $458 in fuel surcharges.

BA-Fuel-Surcharges

Why? Unfortunately the only accurate answer is “because they can.” As far as I know, the only way in which airlines are benefiting from fuel surcharges nowadays is in terms of fees they can levy on award tickets:

  • Airlines have to advertise all-in prices nowadays, so must include all taxes, fees, and fuel surcharges when quoting prices — therefore there’s no advantage to having “inflated” fuel surcharges
  • As far as I know travel agents get commission on the entire pre-tax fares nowadays, so I don’t think they’re screwing travel agents out of anything by keeping fuel surcharges high

Let’s be clear, even if they did lower fuel surcharges, it wouldn’t lead to a decrease in airfare. They’d simply increase the base fare accordingly. And that’s certainly their prerogative. The cost of airfare has never really reflected the cost of providing the service, given what a perishable commodity it is. That’s why airlines can lose billions of dollars one year, and make billions of dollars the next year.

But for those of us looking to redeem miles, it sure can be frustrating to pay for these “surcharges” when they’re not based in reality.

British-Airways-Fuel-Surcharges

Along the same lines, the always awesome Scott Mayerowitz of the AP published an article today entitled “Why airfare keeps rising despite lower oil prices.”

His conclusion is simple by spot on:

So why don’t they share some of the savings with passengers?

Simply put: Airlines have no compelling reason to offer any breaks. Planes are full. Investors want a payout. And new planes are on order.

The moral of the story is not to expect fuel surcharges to go down. The best we can hope for is that more airlines don’t start imposing fuel surcharges on award tickets.

Comments

  1. But the airlines promised during all the mergers and consolidation that fewer airlines and less competition would be “good” for consumers, since cost savings would be passed onto the traveling public.

    And they wouldn’t be less than fully truthful, would they?

    No way!

  2. I would like to see the aviation press ask these questions of the airline CEOs. “How do you justify these fuel surcharges?” I doubt they’d answer “because we can” since that would be bad for PR. However I suspect that the airlines locked in fuel prices over some long period of time so they might not be seeing the reduction in cost.

  3. Well, hopefully in 50 years or so we won’t have a need for fuel thanks to alternative sources of energy like solar energy!

  4. The status of the Transparent Airfares Act of 2014 is uncertain but with the more business friendly congress coming in January it is certainly possible some version of this law passes 2015. It is possible, depending how the law is written, that it could allow airlines to brake out fuel charges into a fee category. This would certainly seem to be within the spirit of the proposed regulation since its a fee you pay even if you are not buying a ticket (i.e. using FF miles).

  5. If the fuel surcharge goes into the base fare the total paid by the consumer goes up, because of the way the base fare is taxed. This helps manage perception based on total paid by the passenger.

  6. Seth, Gary or someone did a feature on this a but back. Obviously it has nothing to do with the actual fuel prices but it has become a quick way to update pricing. You don’t have to go reprice every fare bucket you just have to jack up one number between two city pairs.

  7. Easy. It was never about fuel consumption, it was about a marketing name that people would swallow. Now it’s starting to bite them in the ass, they’ll probably come up with a new name for the same fee.

  8. Don’t pay it. I won’t pay the high percentage fuel surcharges. I will pay the smaller ones though on other airlines. BA can charge and call it whatever they want but it is dishonest and always too much.

  9. What happened to that lawsuit against BA which said that their fuel surcharges were not linked to price of oil? Did BA win it?

  10. As a travel agent I can tell you another matter it affects. Airlines only pay us commissions on the base price. The more fuel surcharge the less the base is, the less commissions we get

  11. My understanding is that the airlines are not liable for various taxes on fuel surcharges, while they are on the base airfare.

    In any case, it seems particularly nefarious in an industry where the fuel is integrally linked to the product’s ability to function (and be sold). It’s like charging a “bed surcharge” in a hotel, or a “tire surcharge” in a taxi.

    At some point, we’ll figure out a way to sue; till then, they win.

  12. This also matters for corporate discounts which only apply to the base fares. Easy way to reduce the discounts by 1/3 across the board (at least for Y fares).

  13. The airlines don’t lower fuel surcharges because they are locked into contracts at higher fuel prices. The current fuel prices do not benefit the airlines/.

  14. When airlines give passengers a discount code it is only applied to the actual fare not the fuel surcharge which makes the discount code almost worthless.

  15. People are naive if they believe it has anything to do with the actual price of jet fuel! It is implicitly supported by governments all over the world to protect the airline industry and has no relation to anything at all other than being a tweak-able revenue generator on so many levels for the airlines – as many have already highlighted in the previous posts.

  16. When I fly Delta and they announce boarding for elites and sky priority and 3/4 of the people at the gate stand up and get in line to board and the upgrade list has 50 people on it, I am fairly certain that has an impact on costs to the airlines. These days it is more remarkable and unusual to NOT be a miles program member.

    Then again, I could be wrong. What the heck do I know?

  17. Actually the fuel surcharges dropped from ~23 USD to ~16 for domestic travel in China. Gotta love social-capitalism.

  18. 1- Are you sure about the laws prohibiting airlines from advertising base fares? I’ve seen multiple fares from Cairo to the US via FRA on LH Egypt’s website for $100-200 and from Cairo to Europe via FRA for less than $100. When I checked, it had an asterisk that said excluding taxes and carrier-imposed charges.
    Is this prohibited?

    2-As for the fuel surcharges, Airlines don’t just buy Jet-A1 from the gas station every morning, they have a long-term contract with a fixed price that’s changed every couple of years. Those swings in fuel prices don’t affect them and therefore don’t affect us. And even if they did, they still couldn’t care less about ticket prices on most routes.

  19. A class action lawsuit directed at one of the worst abusers of fuel surcharges in a well-chosen country would light a fire under the airline’s asses. Fuel surcharges are meant to defray the current cost of spiking oil prices. They are not supposed to be related to the hedged fuel price many airlines pay (actually lower). The average airline customer sees oil prices go up and is sympathetic and accepting of these “temporary” bogus fees because they also experience higher gasoline and heating oil prices. They have no knowlege of the lower hedged price many airlines are actually paying during the spikes we all experience. Fuel surcharges must be eliminated within the airline marketplace as soon as oil prices return to “normal”. A lawsuit could really embarrass the industry and eliminate this theft – until they further devalue points.

  20. Not that I agree with it in any way, but British Airways stopped calling YQ “Fuel Surcharge” a few years ago because its price is clearly unrelated to fuel. It is now called “Carrier Imposed Charges” to de-couple the nomenclature.

    https://www.britishairways.com/travel/seccharge/execclub/_gf/en_gb

    But you could simply play them at their own game. Since YQ is charged on origin-destination basis regardless of number of stops in between, you can use the 25% MPM rule and pay extra on what is sometimes a pretty tiny base fare.

  21. It’s because regulators have been lying low: In Japan, airlines had to commit to lower fuel surcharges. For Lufthansa, the following applies:

    USD140 or more less than USD150 per barrel – 32,500 yen
    USD130 or more less than USD140 per barrel – 28,500yen
    USD120 or more less than USD130 per barrel – 24,500 yen
    USD110 or more less than USD120 per barrel – 20,500 yen
    USD100 or more less than USD110 per barrel – 17,000 yen
    USD90 or more less than USD100 per barrel – 13,500 yen
    USD80 or more less than USD90 per barrel – 10,000 yen
    USD70 or more less than USD80 per barrel – 6,500 yen
    USD60 or more less than USD70 per barrel – 3,000 yen
    below 60 USD per barrel – will be abolished

  22. BA has a artificially low airfare, than with fuel surcharges added comes up with the same price as other airlines, By adding the fuel surcharges to award tickets they are for all practical purposes just giving you a discount fare and not a true award. The purpose of a award is to provide the recipient with a product that is being awarded with payment of miles accumulated through loyalty of flying or through partner miles who pay the airline for those miles. airlines such as BA who have such high fuel surcharges have simply found a way to not truly offer a award but discount it. That does not match the promotional materials they promote when talking about earning awards. Fuel is a significant part of their operating expenses and that is just the way it is. If they are going to offer an award it should be just that.
    Imagine if you had a certificate for a FREE meal at a restaurant but they added the cost of energy or rent into your so called FREE meal.

  23. i’m based in SIN and notoriously, SQ’s YQ could be as bad as BA… and i ever heard that SQ reduced the based price and added the portion to YQ so that they could pay lower commissions to agents (commission charged on based price).

  24. Air miles….. 2 months ago I would have saved 2k on flights using air miles, by yesterday the ticket price had come down so much it is only a £400 saving.

    Underhanded and possibly misleading by the airlines. You would think loyalty would be rewarded…

  25. Screech-You are actually complaining about a cost coming down?! Anyway, the airlines are locked into contracts at higher fuel prices.

  26. The Philippine government has eliminated the fuel surcharges for all flights leaving the Philippines – including foreign carriers. This applies also to the fuel surcharges on award tickets from PHL. A First Class award ticket on SQ from Manila to Frankfurt is $485 cheaper than from Singapore! Easily enough for a positioning flight and stop-over in MNL! Check out more here: http://dreamtravelonpoints.com/2015/01/the-beauty-of-dropping-oil-prices-no-fuel-surcharges/

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