Oil Is Cheap — Why Are Airlines Still Imposing Fuel Surcharges?

Reader deelizzle asked the following in the Ask Lucky forum regarding airline fuel surcharges:

Oil is cheap. Why do fuel surcharges still exist?

The title says it all. Oil has gone down to below $35 a barrel. Yet, airlines still charge ridiculous fuel surcharges. This comes into play bigtime with regards to using points to fly on BA, since they will still charge you the fuel surcharge of hundreds of dollars, as if oil were still pushing $200 a barrel.

What will it take to make this money-grab stop?

For as long as I can remember, airlines have been adding “fuel surcharges” to the cost of tickets. They were mild at the beginning, but as oil prices increased, so did the fuel surcharges. The problem is that when oil prices went down, the fuel surcharges typically didn’t go down with them. When they decreased, it typically hasn’t been proportional to the drop in oil prices.

For most consumers fuel surcharges are a non-issue, because they’re part of the overall fare. So it’s not like airlines price tickets and then tack on fuel surcharges, but rather fuel surcharges are calculated as a portion of the overall fare.

The people who have historically lost with fuel surcharges are those booking award tickets. Specifically, some airlines have tacked on fuel surcharges even when redeeming miles, which can add significantly to the cost of a ticket.

For example, take the below ~$900 roundtrip ticket between New York and London. The base fare is $220, the surcharges are $458, and the rest are the taxes. So if redeeming British Airways Avios for this ticket, for example, the only thing you wouldn’t pay is the $220 base fare. That’s not exactly getting much value out of your miles.

Fuel-Surcharges-Fare-Breakdown

Now let’s tackle the actual question. Why do airlines still impose fuel surcharges? They’d claim that they don’t. Instead they’re adding “carrier surcharges” to the tickets. For legal reasons they can’t call them fuel surcharges anymore, so they switched around the verbiage.

Fuel-Surcharges

What does British Airways say about “carrier charges” on their website?

British Airways may impose a charge called a carrier imposed charge as part of the total price of the airline ticket, which you may see stated separately in certain displays during the booking process or on your final e-ticket receipt.

They haven’t bothered explaining what these charges are, because of course they’re completely indefensible.

How do they get away with having these surcharges? Well, because they can, simply put. It’s the same reason the airlines can publish award charts but not make a single saver level award seat available for an entire year. It’s the same reason airlines can devalue award charts without notice. It’s the same reason some hotels charge resort fees.

While I do find it frustrating, the good news is that we know which frequent flyer programs impose fuel surcharges, and we can act accordingly. For example, British Airways imposes fuel surcharges on some award tickets, but not on others. So I’ll redeem miles on partners for which they don’t impose them. The same is true for other airlines as well. Fortunately we can vote with our wallets and stay away from those programs.

British-Airways-747

Perhaps in theory this is something which some politician might take on and try to create laws around, though personally I’d rather see frequent flyer programs as unregulated as possible, as it becomes a slipper slope.

Bottom line

“Carrier charges” are one of the many indefensible practices in the airline industry. As consumers we can choose to be loyal to whichever frequent flyer programs we want, though nowadays the airlines are doing so well that they probably won’t feel the heat too much. Unfortunately I wouldn’t expect this practice to change, even with oil as cheap as it is.

What’s your take on carrier imposed surcharges nowadays?

Comments

  1. Because they can – I don’t think that there is any better way to say it.
    Be a smart consumer (hate the word ‘consumer’). Start educating everybody you know (that travels) about this matter and teach them better ways to redeem they’re miles. For example, park your miles somewhere else, like you mention, or use the miles from FF programs of airlines that impose those fees on other airline’s flights (like BA’s EC for AA flights), or use the secretive and quite complicated method of fuel dumping.

  2. In the case of BA, at least the surcharge incentivizes them to release a decent number of seats for redemption. AA saver awards are non-existent. I’d rather have the availability with the surcharge than without, all other things being equal.

  3. I have over 200.000 Avios and every time that I try to use them the fuel surcharge is almost as much as paying for the ticket cash. I am trying to use them for flights to Europe. Maybe getting that 100.000 Avios British credit card wasn’t a good idea after all…

  4. Crude oil prices do not have a direct 1-to-1 effect on the cost of jet fuel, just like it doesn’t have a 1-to-1 effect on the cost of gasoline. Crude oil has to be transported and refined, and these days refining capacity (because of all the old refineries being shutdown and maintenance periods—necessary ones…or otherwise) has about as much effect on the price at the pump as the cost of the raw material. And even when prices are low for a long period of time, it takes weeks or even months for those lower crude oil prices to translate to lower prices at your local Exxon or 76, consistent with the time it takes oil to be pumped out, transported, refined, transported, and delivered.

    Fuel hedging contracts are something that the average driver doesn’t have to deal with, either. If your forecaster predicts that jet fuel prices are going to go up for the next several years, and you sign for a three-year contract on 80% of the fuel you use, do you think the provider is going to say, “Aw, shucks, jet fuel is cheaper than what you agreed to pay me, so I’m going to let you out of the contract early”? Or do you think the airlines are going to say, “Hey, jet fuel is dirt cheap now. I guess we better lower these surcharges despite the fact that we’re locked into a contract that has us paying higher prices, lest someone who’s probably just price-loyal is going to complain”?

  5. Why? Because they can, they want to. Oil could drop to 1 cent a gallon and they’d still keep the fuel charge. Like a tax, when have you ever seen one go away. No, the fuel charges will stay until the last flight on planet earth. The focus of the airlines is to find any and every single revenue generator, to include one day charging
    for oxygen aboard the aircraft. Recall that the CEO of RyanAir or EasyJet wanted to charge for using the toilet.
    They will push the envelope of charges. Not unlike hotels have done with so-called resort fees (every hotel will eventually charge for use of the bathtub as a mini-swimming pool, hence the resort in the fee).

  6. Can we start a petition across USA and UK to have a law or rule about carrier charges? With the number of followers of ba blogs I am sure we can have some impact. I think you should use the fame of your blog to change the world. This practice of airlines is just too greedy in my opinion. Don’t sit there settle where you could change something. Let’s try!

  7. Steve L is right on the hedging- big European carriers locked in some pretty awful fuel prices that will begin to roll off in 2016. Also in Japan fuel surcharges are regulated to be a trailing three month average of historical jet fuel prices, so sudden drops in fuel prices don’t get felt in ticket prices until you have three sustained months of low fuel prices. On average US airlines have given back 30-50% of the decline in fuel to consumers in the form of lower ticket prices, so I would imagine there’s no reason the big European carriers wouldn’t do the same as their hedges come off. Asian airlines less so.

  8. The reason that fuel surcharges remain on revenue tickets is, changing the fuel surcharge is easier than filling for new airfares. The airlines can change the fuel surcharge with a few keystrokes. Filing new airfares is far more involved and can’t be accomplished in a short period of time. As for award travel, it is the typical, “what we can get away with…..”.

  9. Because people are willing to pay them. If people stopped paying ( flying) these airlines they would go away. Having a functioning market means some people are willing to indulge in transactions that they might rail against some one else does it. Eg you are all for gay rights but don’t mind flying airlines whose countries are anti gay. We are all for human rights but want our cheap stuff more than human rights.

  10. Ben, I think there’s nothing wrong with the facts, but there’s a fundamental mistake in the statements and observations here, completely biased by the obsession with miles. The main reason why airlines have these carrier imposed fees (no longer called fuel surcharge > so going to court becomes difficult) is that travel agencies, still making the vast majority of bookings worldwide (especially in business travel) get a commission on the fare, not on the surcharges etc. So airlines keep the overall ticket price constant, but reduce the part on which they’re due commission. That’s the real reason why these charges continue to exist, it just allows airlines to reduce their commissions. The fact that this then also happens (partly) to awards, is just a “lucky coincidence”. It changes nothing to the overall observation, but we should look to the real world rather than naively look to the 1 % of people that are award bookers – we might think that airlines model things ” around us “, the reality is that we’re just “background noise” for them!

  11. Traditional travel agents make less than 40% of all flight bookings today and dropping; also the airlines haven’t paid a % commission on bookings in 10 years.

    But there is a related reason for fuel surcharges vs fares- lower taxes on the fuel surcharges. Doesn’t make them anymore right, but as other readers and Ben have pointed out, there are a lot of workarounds.

    Brazil and the Philippines have both banned fuel surcharges, so any awards originating there would have no charges. Hong Kong has limited fuel surcharges, so any tickets originating there have much lower fuel surcharges.

    However, I do not understand some of the rhetoric above- choosing to redeem your Avios on non-fuel surcharging airlines is not “voting with your pocketbook”- it’s saving you money by finding the loopholes. Voting with your pocketbook would be refusing to accumulate Avios.

    Since FDs wouldn’t exist if the carriers charged normal pricing, I would agree that’s beating the carrier at their own game.

    Finally, better the current system of calling them “fuel surcharges” with all the workarounds listed above, rather than charging an “award booking fee” that would apply to all redemptions, and based on a % of the ticket price. Bottom line, for someone who does a ton of premium redemptions, I think his is a very naive column…

  12. @George – do you know if the prohibitions in Brazil and the Philippines would apply if they were re-labeled “carrier surcharges”?

  13. JAL and ANA have significantly dropped their YQ – at least from India to Japan, since 1 December, 2015. Before the cheapest ANA fare DEL-NRT return was around USD 600 but now it’s around USD 500. Hope other airlines would follow too.

  14. It’s called reduced competition. US Gov’t needs to allow foreign carriers to sell domestic USA tickets.

  15. @Travelpointsandpics – NEVER try to book a BA award on BA metal, because they will always charge you high fuel fees. Book Avios with one of BA’s partners like Aer Lingus which has very small fuel fees.

  16. @Steven r I really hate these know it alls who are going to come on here and explain how the Egyptians invented time. Its Bovine scatology you idiot so go back to your airline oil job or whatever else you do.The surcharges are a ripoff period. I don’t even fly a lot but it offends me and I am sick of airlines and other corporations doing this.

  17. Parker says:

    “Steve L is right on the hedging- big European carriers locked in some pretty awful fuel prices that will begin to roll off in 2016. . . . On average US airlines have given back 30-50% of the decline in fuel to consumers in the form of lower ticket prices, so I would imagine there’s no reason the big European carriers wouldn’t do the same as their hedges come off. Asian airlines less so.”

    The big European carriers may have hedged at awful prices (lets say crude at $70/bbl”). But the option contracts are just that . . . options. They typically do not obligate purchases at any particular price.

    Rather, what is going on is a shift from a characterization of “fuel surcharge”, which suggests a carrier-passenger risk sharing device to a crude characterization of an arbitrary “carrier imposed surcharge”. The carriers who have recharacterized are wise – under current conditions, continuing to have what is denominated a “fuel surcharge” could invite claims of fraud.

  18. Lucky – I can’t believe you are actually surprised at fuel surcharges not going away (or being lessened) with the dramatic reduction in oil prices. Fuel surcharges are like taxes – once they are here they are here to stay!!

  19. Hey Lucky, would you have a simple list which shows which airlines impose charges on award flights, and which don’t?

  20. LOL Hedging is not the reason fuel surcharges remain high despite the nosedive in the price of oil. US airlines are reducing their future hedged positions. Ben nailed the main reason. Another reason, I suspect, is having fuel surcharges leaves room for imposing other surcharges when the mood strikes. In the future might we see labor surcharges, cost of capital surcharges, landing fee surcharges, and perhaps even CEO pay, benefits and severance package surcharges?

  21. Voting with your wallet does not help from PHX. BA is the ONE and ONLY NON STOP to Europe, yes the whole of Europe!! So the so called non fuel fee versus delayed flights and rushing from terminal to terminal to make a connection give a peace of mind with say AA somehow makes the fee worthwhile. Can reduce the fee though if return flight originates elsewhere and is a legal in transit pass through via LHR.

  22. Brazil and Philippines banned airlines serving them from imposing those YQ/YR surcharges and the airlines are still serving those countries. So, contact your Senators and Congressmen with that information. Ask if they want our citizens and Federal travelers to continue to be ripped off.

  23. The simple solution is to stop flying British Airlines with these mock surcharges and disappearing companion passes……….it’s not rocket science………BA still thinks it is a colonial power and treats its’ customers as such…………..

  24. It is very frustrating even more if you redeem award seat or purchase commercial seat on SQ as surcharge fee can get to as expensive as $600 one way for US bound on economy class & totally ridiculous for C & F class whether for award or commercial., Fuel / other surcharge which ever term airlines use, it is an act of extortion. I am switching from those loyalty programs as surcharge getting out of hands.

  25. I don’t think we should be calling them “fuel” surcharges. In the case of BA anyway, they have dropped the term under pressure. It’s not related to fuel at all, and hasn’t been for some time. I think that using the expression “fuel surcharge” is inaccurate and tends to justify this junk fee in some people’s minds. It is simply the “because we can rip you off” fee, not linked to fuel or to any service they perform. Airlines should be required to express all required fees honestly. If a service is optional, fine, that can collected as a separate fee.

  26. As others have mentioned there is really quite a bit of political involvement in this already, at least in some countries. Brazil has banned them, and in the US the rule is that all fees which all passengers must pay have to be incorporated into the base fare, so fuel surcharges are also effectively banned for domestic travel — unfortunately the same rule does not apply to international flights to and from the US.

  27. In order to get a round trip BA redemption through LHR to Dublin with a business class ticket going, I am flying to SFO on Alaska. I got a premium economy redemption coming back.

    But seat selection in business is costly and premium economy less so.

    I got another paid ticket from Seattle to Dublin through ORD when American had a sale. Glad to avoid LHR connection on that one.

    By the way, comparable BA flights with connection in LHR to Dublin cost quite a bit less than getting off at LHR or connecting to UK.

    FInally, BA flights from Vancouver cost a lot less than from U.S.

    I have become unenthused with BA. Their Avios points are hard to use. I will most likely spend mine on regional flights with other partner carriers.

  28. You say some carriers impose surcharges and others don’t. Others still like BA will impose charges on some awards but not others. Has anybody out there on the internet compiled a comprehensive list of who does and doesn’t?

  29. I actually view it as simply misleading the consumer. They lie about the price of a ticket and then add fees on top to make up the difference. It is a manipulation that should be deemed illegal.

    The additional benefit to BA is that it discourages consumers from using their award miles on BA. Using your miles or Avios points on another airline is even better for BA because now they’re able to sell the seat someone (ticket price) and collect fees.

    The airlines should not be allowed to manipulate pricing in these ways, a rare occasion where I think we do need some additional regulations.

  30. The way I see it, the airlines are also trying to wiggle their way out of taxation revenue for the governments. Airfare is taxed, but more often than not, the surcharges are not. For a typical $1000 roundtrip ticket where the airfare is $400 with $600 in surcharges, the government is only getting revenue from the $400.

    For the unsuspecting traveller, they only see the net prices. And yet, we only complain for the 3rd rate infrastructure for flying facilities.

  31. Oh my, so I am not the only one suffering from this. I thought it was only my carrier who was doing that. Imposing surcharges on Award seats. It is good though that in my case I am always able to find award seats if I book early enough. I am only now upset just like the rest of you that they make me pay almost half the ticket price every time I ask to redeem an award seat under the so called Taxes.

  32. It’s simple. NEVER fly on airlines that impose fuel surcharges or those surcharges under another name. Are you a masochist?

  33. No I am not. Why do you ask?
    I am an unsuspecting traveller who feel into the same trap that many of us fell for and learned it the hard way. So of course I will not fly with carriers who do that. Most of the well known ones however, impose surcharges. I am trying to find a list of those who don’t. Does anyone have such list?

  34. There’s no such list of carriers because every airline does it. They just simply shift the line item (creative accounting) when government steps in. Governments want a piece of the transaction by taxing the airfare. But they cannot get any percent of the fuel surcharge if it’s itemized to a misc. or surcharge. So, low-cost airlines may advertise a $1 airfare, but under the guise of “taxes and fees”, you end up paying only a few dollars less than a full service carrier that gives the prices upfront.

    Instead, you need to do your research by each route. On the receipt breakdown, it’s usually under line item YQ.

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