Fuel Surcharges - a scam?
 

Most of the major airlines have added a $40 fuel surcharge to domestic round trip tickets this weekend. It seems like a way to institute a secret fare increase which passengers won't be aware of until time of ticketing as it isn't included in online fare quotes.

On the surface this seems somewhat reasonable since we all know how much fuel prices have risen. But the timing is very very curious once you understand that almost all airline buy their fuel in the futures market to hedge against this very situation. Also OPEC is meeting this weekend and the price of fuel will soon fall if they agree to boost production, as seems likely.

Looks to me like they came up with this when they think they can sell it to press and public. Please refresh my memory - did any of you receive a fuel price rebate when oil fell under $10 not so long ago?

The fuel surcharge is $20 for a U.S. domestic roundtrip ticket, not $40.

It was $20 yesterday, $40 today. At least according to bestfares: http://www.bestfares.com/travel_cent...d=55&mask=1111



[This message has been edited by gilpin (edited 09-09-2000).]

Read the entire article that you referenced. The $40 includes the $20 assessed in January, so your first sentence is incorrect.

gilpin,

I agree that that the fuel surcharges are starting to verge on becoming a scam. At $20, it didn't cause too many waves. I think (and hope) the increase to $40 will kill this deception altogether. If the airlines want to increase fares, then let them stand up and identify it as such.

I think that with this increase, the 'surcharges' will start to attract the attention of the various states' Attorney Generals. I know that the PA Attorney General's office has been very active in the consumer protection area. They have been leaders in building alliances with other states to deal with consumer issues that the Feds like to dodge. Hopefully, they will 'step up' for this issue.

Personally, I will wait until the next time I see a fare sale in one of my local papers. At that point, I will send an email complaint to the VT Attorney General's office. I would suggest that others do likewise.

I don't understand why it is based on a ticket if it's a fuel surcharge, it should be a varilable amount based on distance. If I fly from New York to DC I should pay less of a fuel surcharge then from New York to LA.

I did read the entire article. My first sentence is ambigous, what I meant was the airlines have now added a TOTAL of $40 in fuel surcharges. Whether half of it was previously insinuated into the structure of things doesn't change the fact that there is now a $40 fuel surcharge. Note that fuel prices have now fallen slightly from their peak.

[This message has been edited by gilpin (edited 09-09-2000).]

Musings of an armchair economist...

Airlines hedge fuel costs, but at some point higher prices will catch up to them. If the spot price of jet fuel rises 30 cents, they have to assume that eventually they will be paying that rate. They can hold off a price increase for a while, but only until it is very obvious that the spot price will not be relaxing.

I want to say that I once heard a 757 burns approximately 2.5 gallons of fuel per mile (on a 1,500 mile trip). Not too long ago the airlines were paying about 70 cents a gallon for fuel. Consequently on a theoretical 1,500 mile trip they burn up $2,625 worth of fuel. If fuel rises to a dollar, their fuel bill is $3,750.

Now assume a typical 757 holds 160 people, and its owner averages a 70% fleet load factor. The fuel increase of $1,125 has to by divided by 102 people (probably less if you factor people flying on free tickets). What you end up with is an increased expense of $11.03 per person.

I'm not anywhere sure of the fuel consumption rates, and the actually price the airlines are paying for it. If anyone has more objective numbers please post them. Nevertheless, it is not difficult to see where a $20 round trip number starts to make some sense.

Craig .. great piece of math! Looks pretty ball park to me at first glance, and your load factors and cost look within sensible reasoning.

My only take is that a $10 levy might have been more prudent, as a good deal of hedging saving must still be in place, and conversely a drop in price due to increased production will mean $10 might soon be over correcting?

On a $69 cheapie a $20 hike is nuts. Does it apply to EVERY flight regardless of distance? Guess I better shut up at I step onto a SYD-USA-MEXICO-SYD in a few days, of 18,000 miles of flying so if they levied it on distance I'd be up for $100s more, not $20!



------------------
~ Glen ~

Altho a UA 757 holds 182 (24+158) when full or about 15% more than your "back of envelope" working of 160 capacity, so $10 does look right on the money if they were FAIR about it!




[This message has been edited by ozstamps (edited 09-09-2000).]

Fuel costs represent about 15-20% of most airlines operating costs. Assuming they sell you a domestic US RT at $ 500, their cost is $250, their fuel cost is $50.

Fuel cost has doubled in the past 12 month, and risen 37% this year.

Here's your 40 bucks!

This being said, I think a percentage of the fare is really what is needed, because on a LAX-SFO of $100 costing them $75, the fuel costs are about $15, so $40 is highway robbery and I might like my congressman to look into it.

I'm impressed that you guys have something of a handle on fuel costs, at least hypothetically. Given that the fuel the airline is using today may have been purchased a year ago (or not) it's all speculation of course.

The manner in which this is being done is what I object to. All business change prices when market conditions warrant. But no other business could get away with this scheme. Imagine this fictional scenario:

The price of wheat has risen drastically in the past year. Consumers are upset with the poor quality and high price of bread. Instead of raising the price of bread all companies institute a $1 wheat surcharge. The prices on the shelves stay the same, but at checkout an extra dollar is charged on any wheat item, wheather a 10 pound loaf or a single dinner roll.

Of course this could never happen because it would be illegal. First an industry-wide scheme of this sort IPMLIES price fixing, and second the price listed on the shelf couldn't be different than the price actually charged.

How do the airlines get away with it? They come under the jurisdiction of the DOT and not the FTC! That's why we don't see newspaper ads stating:

BREAD - ONLY $1!*

*(per 1/2 loaf - full loaf purchase required)

[This message has been edited by gilpin (edited 09-10-2000).]

[This message has been edited by gilpin (edited 09-10-2000).]

I recall when world coffee prices went nuts. A jar of coffee went up about 30% here. REAL fast - in weeks. World coffee prices then went down.

My jar of Moccona did NOT!




[This message has been edited by ozstamps (edited 09-10-2000).]

I think some of you are trying to have it both ways, which you can't.

You fault airlines for the fuel surcharge, correctly saying that they hedge fuel prices, so they really don't need the surcharge.

Then you ask, what happened to the fuel rebate when oil prices were low? Well if the airlines are hedging, then they lose the benefit when prices go down.

Surcharges are not all that uncommon on things other then airlines, most delivery companies have added fuel surcharges, when there is bad weather in Flordia that destroyed the tomato crop some stores put a 25 cent surcharge on sandwiches if you wanted tomatos, etc, so they do happen.

I'm just not sure this isn't a bit too much to be charging, esp on the lower cost flights (say $200 and under) where the $20 here and the last $20 mean the fuel surchage accounts for 40% of the ticket value (or more) and that is just for the surcharge, not the fuel costs from say January.

Anybody know if the surcharge is being applied Cargo too?