Time for AA to drop Fuel Surcharges

 
Old Oct 21, 08, 5:21 pm
  #46  
 
Join Date: Aug 2004
Location: SAT
Programs: AA PLT, BA Gold, TK Gold, Hyatt Gold, Hilton Gold, Gold SPG, AS 75K, QR PLT
Posts: 5,823
Originally Posted by Sam - DFW View Post
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.
What he said.. total agreement... transparency in pricing is a key necessity for consumers.
Deltahater is offline  
Old Oct 21, 08, 5:49 pm
  #47  
FlyerTalk Evangelist
 
Join Date: May 2001
Location: LAX; AA EXP, MM; HH Gold
Posts: 31,790
Originally Posted by badjuju View Post
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.
Actually, AA does buy fuel for its planes like we fill up our cars. The price of jet fuel changes constantly - just like gas - and airlines (even WN) simply fill up at the current price. When they settle their hedging contracts, they either get a check or they pay money (actually, the winning side is already holding the cash of the loser in most hedges). There isn't a forward market in jetA, so the airlines generally use a combination of gasoline, heating oil and crude derivative contracts in a hope that those products provide a close proxy for the price of jetA.
FWAAA is offline  
Old Oct 22, 08, 11:33 am
  #48  
FlyerTalk Evangelist
 
Join Date: May 2001
Location: LAX; AA EXP, MM; HH Gold
Posts: 31,790
Originally Posted by Sam - DFW View Post
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.
I don't understand the vitriol against fuel surcharges. If AA charged them against its "free" award tickets, I'd agree with you.

To answer your question, yes, AA lost $4 million a day last quarter because its fares+fees were not high enough.

I don't care whether AA charges high fares and no fees or low fares and high fees. What I fail to understand is why the ratio is so important to some of you. What matters to me is the all-in price, and so far, that all-in price is ok with me. Since fuel surcharges are non-discountable under most (all?) corporate discount programs, I can see why AA would rather raise the fuel surcharge than raise the base fare.
FWAAA is offline  
Old Oct 22, 08, 11:50 am
  #49  
Original Member
 
Join Date: May 1998
Location: Hellsea - NY, NY, USA
Programs: AA EXP, UA 1K, Marriott LT Titanium
Posts: 1,990
Originally Posted by FWAAA View Post
I don't understand the vitriol against fuel surcharges. If AA charged them against its "free" award tickets, I'd agree with you.
I don't have a problem with a carrier pricing a product in a manner that compensates for the cost of providing that product.

There are more honest ways of including these price increases that don't attempt to deceive or exclude revenue from pre-existing contracts with their customers and partners.

I would have no argument whatsoever if the industry went back to including fuel surcharges as Q surcharges in the fare calculation, which do get summed back up in the base fare. But by specifically calling it a YQ/YR, they are taking back some of the discount, commission, and override money without officially renegotiating those contracts.

It's sneaky, and taking advantage of a loophole in the way ticket prices are constructed.

It would be the equivalent of pricing a product at $10 in a store. You also give your best customers a 20% discount off the sticker price, you give your distributors a 5% commission on that price, and then when a customer actually decides to buy the product, you tack on a $10 surcharge at the register alongside the sales tax.

Your best customers pay $18 instead of the $16 they should have been given as part of the discount arrangement, your distribution partners make a $.50 commission instead of a $1.00, and your customers start the purchase decision process from a basis of $10 instead of the $20 that it ultimately winds up being.

Again, it's just plain sneaky because that $10 surcharge you tacked on is going straight back into your pocket.

Last edited by RChavez; Oct 22, 08 at 12:13 pm
RChavez is offline  
Old Oct 22, 08, 1:42 pm
  #50  
 
Join Date: Dec 2006
Location: Washington DC Metro Area
Programs: AA: PP, LTG/1.5M | UA: SLV | Bonvoy LTT | IHG Mbr| Hertz 5 Star | Nat'l Emerald Club EE
Posts: 1,056
If you're so upset over AA's "dishonesty", vote with your wallet.

cheers!

Originally Posted by RChavez View Post
I don't have a problem with a carrier pricing a product in a manner that compensates for the cost of providing that product.

There are more honest ways of including these price increases that don't attempt to deceive or exclude revenue from pre-existing contracts with their customers and partners.

I would have no argument whatsoever if the industry went back to including fuel surcharges as Q surcharges in the fare calculation, which do get summed back up in the base fare. But by specifically calling it a YQ/YR, they are taking back some of the discount, commission, and override money without officially renegotiating those contracts.

It's sneaky, and taking advantage of a loophole in the way ticket prices are constructed.

It would be the equivalent of pricing a product at $10 in a store. You also give your best customers a 20% discount off the sticker price, you give your distributors a 5% commission on that price, and then when a customer actually decides to buy the product, you tack on a $10 surcharge at the register alongside the sales tax.

Your best customers pay $18 instead of the $16 they should have been given as part of the discount arrangement, your distribution partners make a $.50 commission instead of a $1.00, and your customers start the purchase decision process from a basis of $10 instead of the $20 that it ultimately winds up being.

Again, it's just plain sneaky because that $10 surcharge you tacked on is going straight back into your pocket.
AAir_head is offline  
Old Oct 22, 08, 1:51 pm
  #51  
 
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
Originally Posted by AAir_head View Post
If you're so upset over AA's "dishonesty", vote with your wallet.

cheers!
you say this (probably in jest)... but there really is a tipping point.

fiance and i are flying US next month on a route that AA has made difficult. flying AA would have been more money, and it would have been two flights instead of one. the choice was easy, but we would have "cheated" for a lot less.

we are "hard core" AA, but we are questioning our loyalty. we have 3M miles between us. she's EXP this year, too.

i am sure that some "lesser" customers have already moved on to other options.

for us, it is almost impossible to walk away from the perks, but when the perks don't make up for the negatives, it gets tempting.

will "fuel surcharges" cause us to leave AA? no. aa knows this, too.

i think AA is good at one thing - they seem to have mastered the "bend but don't break" philosophy quite well. (did i mix up my philosophies?)
Sam - DFW is offline  
Old Oct 22, 08, 2:10 pm
  #52  
 
Join Date: Dec 2006
Location: Washington DC Metro Area
Programs: AA: PP, LTG/1.5M | UA: SLV | Bonvoy LTT | IHG Mbr| Hertz 5 Star | Nat'l Emerald Club EE
Posts: 1,056
I'm not joking at all. I do understand why you're upset, but you say that you've chosen to accept it.

The only real power you have over this situation is to "vote with your wallet". Write out your grievances to Arpey, burn off your miles and don't look back.

If you're unwilling to do that, accept it gracefully.

cheers!
Originally Posted by Sam - DFW View Post
you say this (probably in jest)... but there really is a tipping point...for us, it is almost impossible to walk away from the perks, but when the perks don't make up for the negatives, it gets tempting.

will "fuel surcharges" cause us to leave AA? no. aa knows this, too.

i think AA is good at one thing - they seem to have mastered the "bend but don't break" philosophy quite well. (did i mix up my philosophies?)
AAir_head is offline  
Old Oct 22, 08, 2:38 pm
  #53  
Original Member
 
Join Date: May 1998
Location: Hellsea - NY, NY, USA
Programs: AA EXP, UA 1K, Marriott LT Titanium
Posts: 1,990
Originally Posted by AAir_head View Post
If you're so upset over AA's "dishonesty", vote with your wallet.

cheers!
My issue lies not with AA specifically, but the greater industry practice. And I have already voiced my complaints with the appropriate organizations.
RChavez is offline  
Old Oct 22, 08, 6:08 pm
  #54  
 
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
going forward, how bad is AA hurting by fuel prices? not much apparently. now that fuel has dropped, analysts are predicting a windfall.

Linenberg projects a $1.3 billion collective profit for the biggest U.S. carriers in 2009, up from a previous forecast of a $350 million loss.

Fuel costs have receded since July, suggesting industry losses last quarter may not be as severe as some analysts had projected, S&P's Corridore said. Jet fuel for immediate delivery in New York Harbor tumbled 29 percent during the quarter from its peak of $4.36 a gallon on July 3.
there really should be a balance somewhere now that fuel prices have returned to "normal"

less availability.

higher fares.

more fees.

it seems like it's all take and no give.
Sam - DFW is offline  
Old Oct 22, 08, 6:47 pm
  #55  
Original Poster
 
Join Date: Jun 2007
Location: New York City - Metropolitan
Programs: https://www.youtube.com/watch?v=itKz7wjc7ys
Posts: 4,364
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
WingedWorldExplorer is offline  
Old Oct 22, 08, 6:56 pm
  #56  
Original Poster
 
Join Date: Jun 2007
Location: New York City - Metropolitan
Programs: https://www.youtube.com/watch?v=itKz7wjc7ys
Posts: 4,364
Still waiting them out. I already have backup reservations using awards,

If I end up using awards, AA has made a really "wise" business decision, by earning $ 0 zippo vs $ 770, unless one of our benevolent friends wants to contribute $ 200 per ticket to AA's profitability.The $ 770 saved now can be used later when prices do return to normal levels.

If JJ and UA can live with $ 770 NYC-GIG/GRU, then so should AA
WingedWorldExplorer is offline  
Old Oct 22, 08, 6:57 pm
  #57  
brp
FlyerTalk Evangelist
 
Join Date: Mar 2004
Location: SJC
Programs: AA EXP, BA Silver, AS 75K Gold MVP, and some hotel stuff...
Posts: 32,596
Originally Posted by Sam - DFW View Post

i am sure that some "lesser" customers have already moved on to other options.
I don't think so. The "lesser" customers probably care most about price and couldn't care less about how it's distributed across "base" and "surcharge." If AA's total cost is too much, they've moved. If not, no reason to move just because of how things are split. I can fully understand why some might find the potential dishonesty annoying, but I still side with those here who care about the bottom line- how much is my CC getting charged for the flight...

Cheers.
brp is offline  
Old Oct 22, 08, 7:03 pm
  #58  
 
Join Date: Jun 2008
Location: SFO
Programs: AA LTP 2MM, Marriott/SPG Rabid Plat w/Ambassador, HHonors Gold
Posts: 690
Originally Posted by JNB280 View Post
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./
Actually, I used to work for a hedge fund doing exactly that, and did quite well (although I didn't find the work terribly fulfilling). And I also did quite well in my personal investments by betting against AA's incompetent management through the use of put options.

There is a difference here between hedging and speculation. I was not (and I don't believe others on this board were either) suggesting that AA start making speculative investments on the direction of oil movements, only that they hedge against rising oil costs (yes, I know Jet-A is more relevant than oil, but the oil market is more liquid). The purpose of hedging in this scenario isn't to make money, it is to reduce or eliminate the risk of upside price movement. It allows for more stable budgeting and planning and protects the airline (to the degree they are hedged) if oil suddenly becomes much more expensive. The airline pays a premium for the options or futures contacts used to hedge, which is lost if the price decreases; but that is just the cost of eliminating the risk, rather than a speculative investment loss. This is far different than expecting AA to short the market when oil over $100, which is a clear speculative play, not a hedge. As you point out, there is unprecedented volatility in markets across the board, which is more of a reason to hedge, not less, since the whole point of hedging is to remove that risk. If volatility is high, there is a high chance prices could suddenly increase (as well as decrease), so hedging makes a lot of sense.

Also, the fact is that market compensation packages for good financial managers tend to be much better than what AA (or the airline industry in general) offers, so they are rarely if ever going to attract top talent.
r415 is offline  
Old Oct 23, 08, 9:50 am
  #59  
Original Poster
 
Join Date: Jun 2007
Location: New York City - Metropolitan
Programs: https://www.youtube.com/watch?v=itKz7wjc7ys
Posts: 4,364
NW and DL also dropped Fuel Surcharge to Brazil AA alone in Fuel Surcharges

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
NW and DELTA have dropped their Fuel Surcharges also. AA alone.
WingedWorldExplorer is offline  
Old Nov 26, 08, 1:03 pm
  #60  
 
Join Date: Oct 2001
Location: Barbados
Programs: AA PLT 6MM
Posts: 630
A month on from the last post in this thread on the surcharge/hedging question, and with oil now down to $50pb, can anyone update us on the AA fuel surcharge. Also, is there any public domain data available on AA's current hedging policy/position? My apologies if I've missed a recent update in another thread.
becket5 is offline  

Thread Tools
Search this Thread
Search Engine: