Time for AA to drop Fuel Surcharges
#16
FlyerTalk Evangelist
Join Date: Jun 2001
Programs: DL 1 million, AA 1 mil, HH lapsed Diamond, Marriott Plat
Posts: 28,190
That's a worthless (no pun intended) comparison. Airlines can simultaneously raise fares and lower surcharges. The proper view looks at total ticket price all in. If AA is $200 per ticket higher, then Revenue Management wants it that way. If the OP doesn't think AA is worth it he's free to buy tickets on another airline.
#17
FlyerTalk Evangelist
Join Date: May 2001
Location: LAX; AA EXP, MM; HH Gold
Posts: 31,789
How could the surcharges be insufficient? Perhaps AA raised them as high as the market would bear and could increase them no further. Even if that level was far below the level required for profitability.
#18
Join Date: Apr 2004
Location: Homeless Nomad Wandering the Globe
Programs: Former AA EXP/2M Lifetime now Blackballed UA Premier Executive PWP Bronze
Posts: 5,938
But what matters here- the price of a barrel of oil on the open market, or what AA are actually paying for the fuel? Others here know all the right places to look for this information, and I don't...but I have a strong suspicion that AA are not "reaping the benefits" of the recent drops in their fuel charges. If they're still paying a lot, does the reduction in the open market price still mandate that they drop prices? Perhaps not.
Cheers.
Cheers.
"WN is profitable b/c of fuel priced hedging. AA does not have this in place, so they are losing money as fuel prices go up."
now you (people on this thread) are telling me that AA might not be making money b/c they ARE using hedging (incorrectly).
either AA is a bunch of f-ing morons, or the facts here are getting distorted to justify raises (fees/fares) when prices are going up and keeping raises (fees/fares) in place when fares go down.
which is it?
#19
A FlyerTalk Posting Legend
Join Date: Jan 2002
Posts: 44,605
The flaw in your logic is the implicit assumption that AA's fuel surcharges were sufficient to cover the fuel increases when oil was $147/bbl. That may not have been the case. Perhaps, just maybe, the fuel surcharges are sufficient to cover $70/bbl to $80/bbl oil.
How could the surcharges be insufficient? Perhaps AA raised them as high as the market would bear and could increase them no further. Even if that level was far below the level required for profitability.
How could the surcharges be insufficient? Perhaps AA raised them as high as the market would bear and could increase them no further. Even if that level was far below the level required for profitability.
AA could easily get rid of the fines by setting prices according to the going rate of the cost of operating the flight.
Fuel fines are a great scam for the airline and ensure that companies who get discounts effectively get a smaller discount and anyone with a discount coupon gets screwed too
Dave
#20
Join Date: Jul 1999
Programs: QF WP, AA EXP
Posts: 3,520
I really could care less what they charge for fuel surcharges. The bottom line is that the US Government should require all air carriers to quote "All In" pricing - all taxes, fees, surcharges, etc. I think it's worked quite well in Australia and the EU.
#21
Join Date: Dec 2006
Location: Washington DC Metro Area
Programs: A: PP, LTG/1.5M | UA: SLV | Bonvoy LTTi | IHG PLT| Avis PC | Nat'l Emerald Club EE
Posts: 1,067
But what matters here- the price of a barrel of oil on the open market, or what AA are actually paying for the fuel? Others here know all the right places to look for this information, and I don't...but I have a strong suspicion that AA are not "reaping the benefits" of the recent drops in their fuel charges. If they're still paying a lot, does the reduction in the open market price still mandate that they drop prices? Perhaps not.
Cheers.
Cheers.
I don't think it's reasonable to simply drop fuel surcharges for several reasons:
1) Despite significant recent drops, the price of Jet-A is actually down only about 1% from a year ago. http://www.iata.org/whatwedo/economi...itor/index.htm
2) After taking a beating on operating costs this year, it's reasonable to expect the business would want to recoup those losses while and where possible so they can end the year without a loss to investors--this would be good, since it will encourage people to buy more shares. Which is important because...
3) We all know AA desperately needs to recapitalize its fleet. Just where do you suppose they're going to get the money for all those new planes if they suddenly cut a revenue stream that might actually turn a profit for a change?
4) Does anyone really know what crude oil and refined fuels are going to cost 3, 6 or 12 months from now? Keeping the surcharges is a short-term hedge against that possibility until AA can lock in hedges at lower prices than they've already contracted for. This is good because...
We'd all like to be flying AA this time next year...right?
cheers!
#22
Join Date: Mar 2003
Location: NYC/PSP
Programs: AA EXP, A3 Gold
Posts: 4,106
And don't forget awards. It's getting out of hand (not on AA) when the fuel surcharge is added on awards. That's just wrong. Food is also getting expensive. Why not add a meal surcharge as well?
I don't think anyone is looking to fly AA at a discount, and I do want AA to be profitable. But just have the guts to charge an appropriate fare and don't hide behind oil prices.
Last edited by justforfun; Oct 20, 2008 at 4:52 pm
#23
Join Date: Apr 2004
Location: Homeless Nomad Wandering the Globe
Programs: Former AA EXP/2M Lifetime now Blackballed UA Premier Executive PWP Bronze
Posts: 5,938
can i assume that from this may post by one of our most knowledgeable contributors that AA does not hedge?
so, aa is paying market price - no more no less, right?
now FWAAA was very clear (in this thread) that the increased fares/fees might have only accounted for oil at $70/$80 and that AA continued to lose (despite increases fees/fares) on fuel at $140.
regardless, please move away from hedging (presumably at costs higher than current prices) is costing AA money arguments.
Incidentally, WN reports that $2.6 billion of their $3.1 billion of cash is tied up in connection with their fuel hedging. We often read posters complaining that AA didn't have the foresight to hedge - which is complete nonsense. What AA lacked was the free cash that hedging requires.
now FWAAA was very clear (in this thread) that the increased fares/fees might have only accounted for oil at $70/$80 and that AA continued to lose (despite increases fees/fares) on fuel at $140.
regardless, please move away from hedging (presumably at costs higher than current prices) is costing AA money arguments.
#24
Join Date: Jul 2005
Location: SJC/SFO/OAK
Programs: BD Gold (and future SEN), 0.2MM AA EXP, HHonors Gold, SPG Gold
Posts: 3,107
AA's fuel hedging has it likely paying more than the current daily spot price - such is the risk of doing this. It will take them weeks/months to get out from under these to where they are paying sufficiently lower rates again. Only then would it make sense for them to drop the surcharges.
Michael
Michael
#25
A FlyerTalk Posting Legend
Join Date: Sep 2003
Location: Living the dream in Antigua and the nightmare in Florida
Programs: AA PLAT 2MM, *A Gold, WN detractor
Posts: 49,921
Irrespective of the details, this is bad PR for AA. Other carriers are reducing the surcharges. The problem with surcharges is that they work both ways. It's difficult to implement them based on the notion that the surcharge covers a cost that is beyond the carrier's control, and then stubbornly refuse to reduce them when the perceived cost is going down.
Neither I nor anyone else in this forum knows the details of AA's fuel purchasing strategies. I also agree that carriers must make money to survive. But I have always been an advocate of better pricing, and I think the nickel and diming of services, together with fuel surcharges is a losing strategy in the minds of the customers.
Neither I nor anyone else in this forum knows the details of AA's fuel purchasing strategies. I also agree that carriers must make money to survive. But I have always been an advocate of better pricing, and I think the nickel and diming of services, together with fuel surcharges is a losing strategy in the minds of the customers.
#26
Join Date: May 2008
Location: NYC
Programs: DL PM; UA 1K; AA 1MM
Posts: 4,518
I disagree. It's time for AA to make some money. For the first nine months of 2008, AA has lost over a half billion dollars (excluding special items) and has produced negative cash from operations. I want AA to survive - actually thrive - so that my status and accumulated miles are worth something. With premium revenue tanking, now's not the time to drop any fees, IMO. YMMV.
#27
FlyerTalk Evangelist
Join Date: Mar 1999
Posts: 12,097
WOW--check out the graph of the price of jet fuel as reported by the Energy Information Administration ("Official Energy Statistics from the U.S. Government") at http://tonto.eia.doe.gov/dnav/pet/hist/rjetnyhD.htm
Pretty amazing price reduction -- the price now (at $2.35/gallon) is about where it was in August 2005 (not adjusted for inflation!), August 2006 and September 2007.
Pretty amazing price reduction -- the price now (at $2.35/gallon) is about where it was in August 2005 (not adjusted for inflation!), August 2006 and September 2007.
#28
Join Date: Oct 2002
Posts: 1,701
But what matters here- the price of a barrel of oil on the open market, or what AA are actually paying for the fuel? Others here know all the right places to look for this information, and I don't...but I have a strong suspicion that AA are not "reaping the benefits" of the recent drops in their fuel charges. If they're still paying a lot, does the reduction in the open market price still mandate that they drop prices? Perhaps not.
Cheers.
Cheers.
They chose this strategy. Now they have to live with it.
#29
Suspended
Original Poster
Join Date: Jun 2007
Location: New York Metropolitan Area 45 km from JFK
Programs: UA,AA,AS,BA
Posts: 4,607
#30
Suspended
Original Poster
Join Date: Jun 2007
Location: New York Metropolitan Area 45 km from JFK
Programs: UA,AA,AS,BA
Posts: 4,607
Right on. A Surcharge is a temporary remedy. AA's average fuel cost ( I am sure ) was lagging the spot price on the way UP ( and lagginng on the way down due to hedges) However, pattern should be symmetrical. If AA thinks that demand is somewhat inelastic and wants to protect profit margins, it should just raise base fares ( and hope they do not loose market share to TAM and UA. A surcharge is for a specific - sudden and temporary increase in 1 element of "Cost-of-Goods Sold". Its either a component of permanent cost structure or its not - choose and set your regular prices accordingly.