Time for AA to drop Fuel Surcharges

 
Old Oct 20, 08, 7:56 pm
  #31  
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Right on
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Old Oct 20, 08, 8:10 pm
  #32  
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Originally Posted by FWAAA View Post
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.
Fair enough, but there are two ways do that. The honest way: a fare increase. And the dishonest way: a misappropriated charge.
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Old Oct 20, 08, 9:19 pm
  #33  
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Originally Posted by Dave Noble View Post
There is no flaw. Set the fares based on what is required to be profitable and don't use fuel fines as a way of hiding the fare away as if it was a tax.

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
^^^ Well said, my friend.

I have long since loathed YQ surcharges because they are obscuring the intended fare that the airline ultimately wants to charge.

It is hidden from their promotional advertising, their discount structures, and their distribution channels.

As you mention, corporate agreements suffer because the discount is usually keyed off of the base. Overrides and commissions (for agencies that still have them) suffer because the sales targets and percentage payouts are driven by the base. Customers get duped into thinking fares are lower than they are, because the advertisements (depending on the country) sometimes only list the base fare exclusive of taxes and "surcharges".

It's really a raw deal any way you slice it, and I'd like to go back to the true purpose of the differentiation between base fares and taxes....pointing out how much the governments of the world tack on to airfares!

But the airlines should set the price of their product accordingly, and then I'll decide whether I'm willing to pay it.

Last edited by RChavez; Oct 20, 08 at 9:39 pm
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Old Oct 20, 08, 9:37 pm
  #34  
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Originally Posted by SNA_Flyer View Post
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.
In some ways, we're already there, it's just that the DOT differs from the EU and Australian governments on what constitutes "all in". The Aviation Enforcement Office of the DOT is responsible for monitoring advertising practices of airlines and sellers of travel to ensure they comply with the many and complex rules around how airfares must be disclosed to customers.

The penalties for violating these rules can be pretty hefty, especially when examining the precedent for how the DOT has determined the scope of an infraction. There have been cases where they have determined that an infraction is a single example on a single page...which can obviously multiply very quickly if applied across an entire fare listing or search result.

The DOT periodically publishes guidelines and advisories to the industry on how it will monitor and enforce the rules and regulations that govern the industry. Here is an excerpt from one in November 2004:

In addition, the desire of carriers to pass on the higher costs of certain expenses discretely, such as insurance and fuel, has led to such expenses being filed separately from the “base” fare in tariffs, a situation that the Department cannot effectively monitor. In view of these developments, the Enforcement Office will no longer allow the separate listing of “government-approved” surcharges in fare advertising. We will consider the separate listing of such charges in fare advertisements an unfair and deceptive trade practice and unfair method of competition in violation of 14 CFR 399.84 and 49 U.S.C. § 41712 and will pursue enforcement action where such violations are found.
Surprisingly, a reversal of this must have been communicated, I'm just having trouble finding it at the moment. Otherwise, I can't imagine that the airlines would still be able to continue excluding them from their fare displays without repercussions.

I'll keep digging a bit more to see what I can find.

EDIT: Actually, after a cursory review of the airline sites, it appears that they are consistent with DOT regulations around fuel-driven YQ/YR surcharges. It is only the GDS displays that are affected, and therefore probably not regulated by the consumer-focused DOT regs.

Last edited by RChavez; Oct 21, 08 at 12:25 am
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Old Oct 20, 08, 10:33 pm
  #35  
 
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This may add something to the discussion(like facts):

While the cost of jet fuel remains very volatile, AMR is planning for an average system price of $3.81 per gallon in the third quarter of 2008 and $3.42 a gallon for all of 2008. AMR has 35 percent of its anticipated third quarter 2008 fuel consumption capped at an average crude equivalent of $95 per barrel (jet fuel equivalent of $2.92 per gallon), with 34 percent of its anticipated full-year consumption capped at an average crude equivalent of $82 per barrel (jet fuel equivalent of $2.60 per gallon). Consolidated consumption for the third quarter is expected to be 772 million gallons of jet fuel.

Info located here:

http://phx.corporate-ir.net/phoenix....cle&id=1175622
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Old Oct 20, 08, 10:47 pm
  #36  
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Originally Posted by Sam - DFW View Post
can i assume that from this may post by one of our most knowledgeable contributors that AA does not hedge?
Nope - that's not the content of that post. That post explained why AA didn't hedge fully in 2003 the way WN did. AA lacked the cash or good credit and settled its hedges in early 2003 as bankruptcy was looming. After it imposed concessions on its employees on May 1 of that year, it restarted its hedging program, albeit on a much smaller scale than WN.

Originally Posted by Sam - DFW View Post
so, aa is paying market price - no more no less, right?
Nope. AA has been hedged in varying degrees since late 2003 and has saved hundreds of millions of dollars on fuel costs since then. Since the oil price peak in July, however, AA's hedges for the third quarter became much less advantageous.

Originally Posted by Sam - DFW View Post
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.
Well, AA just reported a third quarter loss from operations of $360 million, or about $4 million per day before special items. Pretty obvious that AA should have priced its tickets (fare or fuel surcharge) at least $4 million higher per day. Clearly, the surcharges were not high enough to cause a profit.

If AA were rolling in billions of profits, then I'd agree that the time had come to reduce fares (either base fare or surcharges). But until then . . . AA should attempt to raise them, not reduce them.
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Old Oct 20, 08, 11:11 pm
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YQ should be standard among airlines

IMO YQ should be IATA mandated and equal for all airlines.

If you want to change the base fare, fine. YQ should be calculated by segment and applied equally to every airline.

Anything else confuses the consumer and the industry.

LR
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Old Oct 20, 08, 11:32 pm
  #38  
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Originally Posted by WingedWorldExplorer View Post
I am in the process of planning a trip for 5 people to Brazil. JJ (TAM) and UA have dropped their QY fuel surcharges to $ 60-$ 65 , but American Airlines is still at $ 250. For 5 people that is almost $ 1000 of unnessesary expense. If TAM and United have been able to drop Surcharges, then American Airlines must also be able to do so. Current JET A1 fuel prices are down 30% - 45 % from when these surcharges were imposed and I am sure AA buys its fuel at least as cost-efficiently as JJ or UA , if not better. Wake up AA, with new expanded service to Brazil, now is not the time to play Mickey Mouse with fees and charges making AA tickets $ 200 more expensive . Hope some AA exec reads FlyerTalk

So, are you flying on AA?
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Old Oct 20, 08, 11:36 pm
  #39  
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Originally Posted by FWAAA View Post
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.
^

The market dictates when it's time to drop these charges. Fuel surcharges are like housing prices and wage: they move up quickly but are sticky on the way down. My question is what's the problem with UA that it can't keep those fees!!
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Old Oct 20, 08, 11:40 pm
  #40  
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Originally Posted by newyorkgeorge View Post
Also, OPEC is looking at cutting production to get prices stable and there are a number of unfriendly US oil producing countries (Iran, Venezuela) that want to get oil back to $100.
And it's not going to happen! For oil and its downstream products price is highly inelastic; refineries were at capacity. So, when the quantity demanded is strong, the price shoots up; as the global economy weakens, it's tough times for the industry and OPEC won't be able to stop it. There's a good chance that we'll see a price of $30 to $50 in the next few months.
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Old Oct 21, 08, 5:21 am
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Originally Posted by ContinentalFan View Post
And it's not going to happen! For oil and its downstream products price is highly inelastic; refineries were at capacity. So, when the quantity demanded is strong, the price shoots up; as the global economy weakens, it's tough times for the industry and OPEC won't be able to stop it. There's a good chance that we'll see a price of $30 to $50 in the next few months.
If oil really drops to $50, AA should be hedging like mad. If AA management isn't incompentent, they are already hedging at the current price. There's still far too much demand for oil to drop to $30 anytime soon.
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Old Oct 21, 08, 5:59 am
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Originally Posted by r415 View Post
If oil really drops to $50, AA should be hedging like mad. If AA management isn't incompentent, they are already hedging at the current price. There's still far too much demand for oil to drop to $30 anytime soon.
So management is incompetent if they don't hedge now, but if they didn't "go mad," and oil did drop to the $30-$50 range, what would they be then?

/Rant/

I like that so many are excellent at pointing out AA management's flaws during the current fuel situation, yet the percentage of those who've ever actually hedged anything in the futures markets is probably on the short side of 5%. Where were all the AA board market wizards when oil topped in early July? Why weren't they screaming for AA to short the market at those levels? Bottom line, this is unprecedented volatility in markets across the board, and acting like you've got this thing pegged is nothing short of laughable. Complain as you will about surcharges and perceived exorbitant fares, it's your right, but don't pretend like you could do a better job trading/hedging given the current circumstances, because you simply can not.

/Stepping down from my soap box now./
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Old Oct 21, 08, 1:59 pm
  #43  
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Maybe not the time to drop fuel surcharges.....

AMR Corp., parent of American Airlines, reported that it has 38% of its anticipated fourth-quarter fuel consumption capped at an average crude equivalent of $116/barrel and 37% of its anticipated full-year consumption capped at $91/barrel.
http://www.purchasing.com/article/CA6607188.html
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Old Oct 21, 08, 3:22 pm
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Originally Posted by lurcher View Post
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.

But of course - the "surcharge" is only compensating for the cost of fuel - therefore should not allow them additional margin - yea right...

Either way, don't hate the player - hate the game....

Michael
I don't think a lot of people realize that AA does not buy fuel the way we buy fuel for our cars. We buy fuel on an as-needed basis and pay the fee charged at the pump. Airlines do not do this and lock themselves into a rate. If the price of fuel rises much higher than their hedged price, good for them. If the price drops, too bad, so sad. Someone has to pay and now it's the customers.

It's just like the people who purchased their cars with fuel options at 2.99. When the price of fuel was over $4, they were sitting pretty. If the price drops to $2.50, are dealerships supposed to refund the purchasers? I don't think so!
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Old Oct 21, 08, 4:05 pm
  #45  
 
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Originally Posted by FWAAA View Post
Well, AA just reported a third quarter loss from operations of $360 million, or about $4 million per day before special items. Pretty obvious that AA should have priced its tickets (fare or fuel surcharge) at least $4 million higher per day. Clearly, the surcharges were not high enough to cause a profit.

If AA were rolling in billions of profits, then I'd agree that the time had come to reduce fares (either base fare or surcharges). But until then . . . AA should attempt to raise them, not reduce them.
so, AA is losing $4M a day b/c of oil? the price of oil was trading above $100 the entire quarter. in fact, oil was trading above $100 for all of Q2 and Q3 - rounding dates slightly for purpose of discussion.

now that oil is trading below $80, the fuel surcharges should be dropped.

there is no longer a fuel price dilemma. claiming that there is a fuel price dilemma is backwards looking.

there may be a "we can't run an airline" problem, but there is not a fuel price problem.

as others have said, AA's inability to run an airline should not be compensated for by charging for a situation that does not exist.

also, how much of the loss in Q3 was attributed by shutting down routes?

what about planes and personnel that aren't being used due to reduced capacity? how did that affect the bottom line?

i understand that you can't necessarily drop the fuel surcharges the day oil drops below $80, but you can't dismiss this and tie it to overall profitability.

they are charging millions now to passengers that carry baggage. they are screwing passengers on exorbitant change fees (that are jumping astronomically). they instituted these to further compensate for fuel, and i can GUARANTEE you that these will never be lowered or dropped. drop the fuel surcharge fees.
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