Oil price plunge fuels new call for surcharge cuts by airlines

Monday, 29 April 2013 03:03 - - {{hitsCtrl.values.hits}}

One of Australia’s leading travel agency groups has called for airlines to reduce their fuel surcharges in response to falling global oil and jet fuel prices.

Flight Centre Limited Managing Director Graham Turner said recent jet fuel reductions, which had seen prices fall to the lowest levels in more than 12 months, should lead to widespread changes to airlines’ complicated fuel surcharge structures.

“At the very least, surcharges should be lowered immediately,” Turner said. “I stress the word ‘should’ because history has shown that airlines have been much more likely to increase surcharges than they have been to decrease them in response to fluctuating oil prices. A more sensible approach would be to remove these complicated surcharges entirely and to treat fuel in the same way as other operating expenses are treated by simply incorporating it into this base fare. This would create a much simpler fare structure and it would also benefit members of the various airline reward programs, as members are often required to pay the airfare’s fuel surcharge component when they redeem points for travel. This can represent a significant expense, as in some instances fuel surcharges are now higher than the airlines’ base fares.”

Fuel surcharges vary from airline to airline and from route to route.

Air New Zealand does not apply a fuel surcharge and Emirates has a relatively small fee, but many other carriers are charging travellers hundreds of dollars in extra charges.

British Airways (AU$ 763), Malaysia Airlines (AU$ 590), Virgin Atlantic (AU$ 580), Singapore Airlines (AU$ 571) and Cathay Pacific (AU$ 532) charge more than AU$ 500 in fuel surcharges on a return flight from Australia to London.

Airlines typically introduced modest fuel surcharges in 2004 after oil prices topped US$ 40 per barrel. Since then, oil prices have tripled.

Many airlines have, however, increased fuel surcharges at a significantly higher rate. Qantas’s current AU$ 760 surcharge on a return flight to London is more than 12 times its initial surcharge of AU$ 60. The surcharge has not decreased since March 2009, with the last five movements being increases. These increases saw Qantas’s fuel surcharges to London quadruple between February 2011 and March 2012. Singapore Airlines introduced a US$ 20 surcharge on return flights to London in June 2004. Today’s surcharge – US$ 520 – is 26 times that amount.

“For example, Flight Centre is currently promoting a return low season Qantas fare to London that is priced from AU$ 1,809 from Sydney. The price includes a AU$ 760 fuel surcharge, a AU$ 728 base fare and AU$ 321 in taxes. In this instance, the actual base fare only represents 40% of the ticket price,” Turner added.