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Award Fuel Surcharges Masquerading As 'Taxes'.....Time For An 'Inside Flyer' Expose

 

Old Jul 17, 08, 7:36 am
  #166
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As with anything in airline pricing, surcharges are a complicated business. I don't know if this is a great place to explain some of it, but here I go...

I will say up front that I understand the mechanics of how this stuff works much better than I understand the business rationale behind it or the history of how it got this way.

Most of the complication is caused by interlining. There are four (!) different basic ways that an airline can be involved in a ticket:
  1. As ticketing carrier (sometimes called "validating" or "plating" carrier). In the end, a ticket must be issued by a single airline, on that airline's virtual (or physical paper) ticket "stock". This airline gets the money and distributes it to the other airlines on the ticket.
  2. As fare owning carrier. This is the airline whose fare is used and who sets the price for the flights the fare covers.
  3. As marketing carrier of a flight. This is the airline whose flight number is used; they're the ones offering the flight for sale.
  4. As operating carrier of a flight, the ones who own and operate the plane and supply the crew.

For example, Lufthansa (1) might sell a ticket that contains an Air Canada (2) fare which pays for a United (3) codeshare flight operated by US Airways (4). The ticket might (or might not!) also have some Lufthansa fares and flights on it. Because of the Air Canada fare, there will definitely be some Air Canada marketed flights in addition to the United marketed ones.

Of course, most tickets are not nearly so complicated. In fact, most tickets probably have the same airline doing all four things.

One kind of fuel surcharge has existed for a very long time, well over a decade. It is part of the fare, and it appears as part of the fare rules under a section called "surcharges", and in the fare calculation line after the letter "Q". Because it's part of the fare, only the fare owning carrier can say anything about how much is charged - they file it as part of the fare rules. There's no question about it being considered a tax - it's part of the fare amount, and other taxes apply to it as such.

Some time much later, after 9/11, a new kind of fuel surcharge was introduced, labelled "YQ" or "YR" (these are tax codes that IATA reserved for carrier internal use). This is a surcharge that is imposed by the marketing carrier of a flight, and is published separately from the fare rules (marketing carrier XX doesn't have any say about the fares of carrier ZZ that might nonetheless pay for XX's flights). There's a catch, though - the validating carrier must agree (concur) to collect the fee. If they don't agree, then the fee is not due on the ticket.

These new surcharges often appear on the ticket as if they were a tax. Historically, there's really only two places it could go - as part of the fare or as a tax - and it would take a huge amount of software development in dozens of systems out there to have it appear in a new category. And for interline purposes, the protocols used to communicate between those systems would also have to be agreed upon and upgraded.

Because the (generally bilateral) agreements between the airlines usually only spell out how the fare amounts get divided up between the airlines on a ticket, as I understand it, the validating carrier will generally keep any of these YQ/YR fees that are collected. So although the marketing carrier decides how much to charge for these YQ/YR surcharges, the validating carrier gets to decide whether to charge it, and if they decide to do so will generally keep the money.

One dirty little secret of the industry that follows from the above: if you can find a non-concurring carrier to act as validating carrier (and it doesn't necessarily have to be a carrier that otherwise appears on the ticket!), you can get out of paying all of these new fuel surcharges. Because the fraction of the ticket due to these surcharges has been growing over time, this can sometimes lead to a very substantial discount!

In theory any travel agent can override the validating carrier in their GDS, and a judicious choice will produce an (automatic) pricing that leaves out the surcharges. And they wouldn't be breaking any rules by doing so. In practice most agencies are afraid of damaging their good will with the airlines, so they are unwilling to do these overrides. Sometimes you can find a carrier whose website will sell tickets completely on other carriers, and get around the surcharges that way (without naming names, there have been recent examples posted on FT).
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Old Jul 17, 08, 8:25 am
  #167
 
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Originally Posted by ITA Hacker View Post
As with anything in airline pricing, surcharges are a complicated business. I don't know if this is a great place to explain some of it, but here I go...
ITA Hacker, many thanks for the explanation of the mechanics of fuel surcharges!

Is there any way to specify the validating carrier on ITA?
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Old Jul 17, 08, 12:43 pm
  #168
 
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Originally Posted by ITA Hacker View Post
In theory any travel agent can override the validating carrier in their GDS, and a judicious choice will produce an (automatic) pricing that leaves out the surcharges. And they wouldn't be breaking any rules by doing so.
Except for the fact that the "plating" airline may consider this behaviour "misplating" and charge a penalty for that to the travel agent. See e.g. this information from KLM/Air France.

I would assume that all carriers have similar regulations/penalties in place to ensure they won't get hassled with issuing tickets for airlines that may get broke before flight time, as they are liable for transport by alternate means in such a case...but these also work against the intention to avoid YQ/YR surcharges.

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Old Jul 17, 08, 1:21 pm
  #169
 
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Originally Posted by ITA Hacker View Post
As with anything in airline pricing, surcharges are a complicated business. I don't know if this is a great place to explain some of it, but here I go...
ITA Hacker, you rock! Thanks for the informative inside look at the YQ surcharge.

BTW, I'll be in your neck of the woods in the next month, be happy to buy you a beer or two if you are around
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Old Jul 17, 08, 3:08 pm
  #170
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Originally Posted by ITA Hacker View Post
As with anything in airline pricing, surcharges are a complicated business. I don't know if this is a great place to explain some of it, but here I go...

[...]

In theory any travel agent can override the validating carrier in their GDS, and a judicious choice will produce an (automatic) pricing that leaves out the surcharges. And they wouldn't be breaking any rules by doing so. In practice most agencies are afraid of damaging their good will with the airlines, so they are unwilling to do these overrides. Sometimes you can find a carrier whose website will sell tickets completely on other carriers, and get around the surcharges that way (without naming names, there have been recent examples posted on FT).
Thank you for this very thorough explanation, I did not know about the theories behind it but I can confirm with personal experience the major 4 points you mentioned are absolutely correct. That's why I mentioned before that I use UA to ticket paid Int'l First class tickets because UA is one of those carriers which refuse to collect YQ, same goes for AA as well. The catch is of coure many airlines will refuse to be a plating carrier unless they have a flight in the itineary. Although in practice, some will still do it and some will ask a fee for doing it. Plus, this trick generally does not work with discounted economy class tickets since they tend to be issued by the operating carriers themselves with no mix with other airlines. But when used well, that's how you can avoid paying outrageous YQ on NH, SQ and those airlines when you fly on a paid premium ticket. Yes, those charges can indeed add to a substantial amount of the total price.
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Old Jul 17, 08, 3:38 pm
  #171
 
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Originally Posted by iwillflytheworld View Post
ITA Hacker, many thanks for the explanation of the mechanics of fuel surcharges!
Is there any way to specify the validating carrier on ITA?
I too join in thanking ITA Hacker for a lucid explanation. Now, we need an undocumented ITA filter like

/f YQ=0

If anybody has list of plating carriers that refuse to collect yq for others, please pm me the list.

Last edited by aktchi; Nov 8, 13 at 9:59 am Reason: Typo!
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Old Jul 18, 08, 10:50 am
  #172
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Originally Posted by djohannw View Post
Except for the fact that the "plating" airline may consider this behaviour "misplating" and charge a penalty for that to the travel agent. See e.g. this information from KLM/Air France.
I was unaware of this, and I know several US airlines that have no such policy. Thanks for bringing this to my attention!

I would assume that all carriers have similar regulations/penalties in place to ensure they won't get hassled with issuing tickets for airlines that may get broke before flight time, as they are liable for transport by alternate means in such a case...but these also work against the intention to avoid YQ/YR surcharges.
I would think that it would be the fare owning carrier that is responsible for the substitute transportation, not the plating carrier. It's the fare carrier's tariff that applies to the transportation it pays for.

I have no idea what happens when one of the airlines go out of business, but it seems to me that the validating carrier is in a position of relative strength, since they're holding the money.
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Old Jul 18, 08, 10:52 am
  #173
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Originally Posted by aktchi View Post
If anybody has list of plating carriers that refuse to collect yq for others, please pm me the list.
I just realized that my explanation made it sound like this was an all-or-nothing thing.

Each validating carrier decides which other carriers' surcharges they will collect. The data we receive tells us not only what the surcharges are, but which validating carriers concur to collect them.
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Old Jul 18, 08, 12:41 pm
  #174
 
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Originally Posted by ITA Hacker View Post
The data we receive tells us not only what the surcharges are, but which validating carriers concur to collect them.
This is where I and perhaps others get confused. If the validating carrier gets to keep the YQ, why wouldn't it collect? You know, it is the pebble in the shoe feeling, that something doesn't make sense.

I realize that you are walking a fine line with respect to what you can reveal. However, I always invite all FT'ers to kindly pm me any info they can't share publicly.

[I am interested in international tix ex-ORD to Europe, India, Japan, on AA or OW when possible, otherwise anyone. So the practical question is who will sell these tickets sans yq, online if possible because that's convenient for all parties, otherwise at some counter at ORD.]

Last edited by aktchi; Jul 18, 08 at 1:51 pm
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Old Jul 21, 08, 11:25 pm
  #175
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Originally Posted by aktchi View Post
[I am interested in international tix ex-ORD to Europe, India, Japan, on AA or OW when possible, otherwise anyone. So the practical question is who will sell these tickets sans yq, online if possible because that's convenient for all parties, otherwise at some counter at ORD.]
Like I stated above, this only works with First and Business class full-fare tickets, not economy class unless you want to pay a lot more than the best fare available. It's not a secret and there is nothing shadowy about this that has to be discussed by PM. Unlike the LAN.com fiasco, which was obviously a mistake, some airlines like UA and AA do not collect YQ for other airlines with very few exceptions. I was told by a very experienced UA ticketing agent that they have started to collect YQ for LH however I have not tested since I don't usually fly LH on a paid ticket no matter what class of service.

The way it works is as follows in general. I am going to use Star Alliance carriers in my example because I have left OW for a long time and my full-fare bookings have been exclusively Star Alliance.

Sample Itineary: BOS-IAD-NRT-ICN-SIN

BOS-IAD: UA F
IAD-NRT: NH F
NRT-ICN: OZ F
ICN-SIN: SQ F

In this scenario, a mix of 4 airlines is used and ITA displayed the following detailed fare information:

Fare (A1): NH BOSSIN F fare (rules) $9632.00
Tax: NH YQ surcharge $256.20
Tax: US International Departure Tax $15.40
Tax: US September 11th Security Fee $5.00
Tax: US Passenger Facility Charge $9.00
Tax: OZ YQ surcharge $2.50
Tax: Japan International Passenger Facility Charge ¥2040
Tax: SQ YQ surcharge $115.00

--------------------------------------------------------------------------------

Total for 1 adult passenger: $10054.30
(as of Monday, July 21


Now let's recall the 4 points mentioned by ITA Hacker:

Originally Posted by ITA Hacker

1. As ticketing carrier (sometimes called "validating" or "plating" carrier). In the end, a ticket must be issued by a single airline, on that airline's virtual (or physical paper) ticket "stock". This airline gets the money and distributes it to the other airlines on the ticket.
2. As fare owning carrier. This is the airline whose fare is used and who sets the price for the flights the fare covers.
3. As marketing carrier of a flight. This is the airline whose flight number is used; they're the ones offering the flight for sale.
4. As operating carrier of a flight, the ones who own and operate the plane and supply the crew.
In our example, the ticketing carrier is UA, on behalf of all carriers involved. The ticket will be issued on a UA ticket stock, which means if UA goes under, the ticket becomes worthless even if you paid a *&%$ amount of money for it. Beware!

Now, notice the fare owning carrier is not UA, but rather NH or All Nippon Airways for those unfamiliar with this airline designation. In this case, the ticket is sold as a BOS - SIN First class fare on NH. Obviously, NH does not fly out of BOS but thanks to interlining, it can accomplish that. If you try to book between a city pair with does not have a published fare, for instance, from BOS to say, MLE. Since NH does not offer a BOS-MLE fare, you will notice that your ticket will be broken apart fare wise into two or more fare rules. This is when tickets can become really, really expensive. I also notice sometimes exceeding the MTM allowed on a fare will cause that as well.

The marketing carriers are UA, NH, OZ, SQ respectively. However, to throw a spin into our itineary, notice that the NRT-ICN flight booked under OZ F is actually operated by UA. Or for that matter, you can fly UA operated flight from IAD to NRT booked as a NH F flight and still attract NH fuel surcharges on your ticket even there is not a single flight operated by NH. Although unless you are completely out of your mind that you would pay this kind of money to fly a UA operated NH flight in First Class. Prison matrons anyone? Anyway, so this matters for two practical reasons, which unless you regularly buy those ovepriced tickets you won't know;

1) To avoid YQ, you must not have int'l flight marketed by the ticketing carrier which can attract YQ. This means, you cannot have UA marketed flight(s) in your itineary and have it ticketed by UA or else UA will charge your their own YQ. In other words, it makes most major US carriers ideal to act as ticketing carriers since virtually all of them do not charge YQ on domestic flights within the U.S. and Canada, which means their inclusion in the itineary as a part of the overall ticket will actually reduce your cost because they help you eliminate the YQ on other carriers.

2) Fare construction on ITA is not always exact when translated to actually booking full-fare First/Business class. In order to obtain the fare you want, sometimes, that could mean savings of a few thousand dollars - you need to make sure you are booked under the correct marketing carrier on each segment of your flight. This can get really complicated but suffice to say, there is no need to book under the operating carrier's code if you can book it on another airline's flight nubmer, for the exact same flight and yet yield better results (i.e. lower cost of the ticket).

IMO, the essence of this is the above step 3) on marketing carriers. They are critical in avoiding YQ and obtaining the best fare.

Finally, the operating carriers in our sample itineary can be: UA-UA-UA-SQ respectively. Notice how different this is compared to the marketing carriers displayed above. Yet, operating carriers really don't matter from a fare standpoint since even though you are flying UA on 3 of the 4 segments, you still have to pay NH and OZ imposed YQ in principle and here are the YQ information displayed by ITA:

Tax: NH YQ surcharge $256.20
Tax: OZ YQ surcharge $2.50
Tax: SQ YQ surcharge $115.00

For some reasons, I think ITA is wrong on the OZ YQ since OZ just recently increased their YQ as of July 1st and this information appears to be outdated somehow, see ITA is not perfect. In any case, by purchasing a UA ticket on this NH F fare, you can avoid all these surcharges above.

Anyway, this comes from years of experience - no schooling and I am most certainly not a travel agent, or a hacker, , just the perspective of an informed flyer who is out there to get the best deals for the money paid. Full-Fare tickets don't always cost $10,000 each way but the YQ rarely changes due to amount of fare you paid. While it may seem the YQ is relativley small vs. the overall fare here, YQ can end up representing a much larger overall component of your total cost % wise in some cases.

To be really mean, notice this is a full-fare ticket, which means you can also change dates for free, therefore, you can actually avoid some government imposed taxes & fees as well by initially booking your ticket to avoid those due to duration of layover in each station. The trick is, airlines rarely come after you for collecting additional airport fees or government imposed taxes once your ticket is paid for and especially if your travel has already begun. In any case, it's their responsibility to ask you to pay those taxes so if they don't collect those, it's not your problem.

All of the above fail when the ticket is a restricted coach class ticket. The reason is simple, the ticketing carrier is often, if not always = the sole marketing carrier. You can't mix 2, 3 or 4 carriers in a restricted economy fare without paying a hefty more for your ticket. Therefore, the value of the YQ savings is clawed back by the higher fare you have to pay. This stands at a stark contrast to full fare tickets where the fare owning carrier sets the price and it generally doesn't matter whose flights you put into your itineary so long as the fare owning carrier gets to be principal carrier on your itineary.

Another thing you need to keep in mind is the ticketing carrier must also have ticketing and luggage agreements with all the carriers on your itineary. This is very important. Some smaller regional carriers do not have agreements with less known carriers like Air Canada. If you attempt to have AC to ticket an itineary where even if just one of the carrier doesn't have agreements with AC, then AC cannot ticket your ticket at all. Likewise, if you run into a situation where AA cannot hold all the carriers involved on your itineary, it cannot be done. I have not yet ran into a situation where UA has such difficulty yet since UA has a lot more extensive global network than AA or AC and obviously have set up better networks and agreements with carriers all over the world. But just keep in mind this can happen. Finally, is it necessary to book online? My question is why do you want to book online? For simple itineary, I guess you can. But when you buy full-fare, the itineary can be complicate if it involves multiple carriers, so why would you want to book online? It doesn't save you money and can in fact cost you more. Develop partnerships with reliable and knowledgeable TAs is another advanced lesson of being a true Flyer Talker. You need them to work with UA or any other airlines concerned so that you can avoid YQ, save some taxes and receive good service/rebates on your ticket. This will also make sure your insurances will work properly and cover you from delayed flights, to luggage loss, misconnecitons to medical emergencies if your CC offers such protection.

To tell you everything I know, I would have to open a class for that. So the best way to learn is to get out and fly!
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Old Jul 22, 08, 12:30 am
  #176
 
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Guava, thank you for your long and lucid explanation. Like ITAHacker's post (#166) above, it helped me understand the structure of the system just a little.

Sadly, my interests gravitate towards cheapest or almost cheapest economy tickets: I say almost, because I do allow some premium for convenience, favorite ff programs, etc. So I am among those looking for la or similar deal that makes the tickets really cheap.
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Old Jul 25, 08, 10:21 pm
  #177
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Originally Posted by iwillflytheworld View Post
ITA Hacker, many thanks for the explanation of the mechanics of fuel surcharges!
Hear, hear! One of the most singularly valuable posts of the year.
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Old Jul 30, 08, 12:16 pm
  #178
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MAN-LAS in J using BD miles.......388 GBP= 770 USD taxes/fees/surcharges/ad nauseum
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Old Jul 31, 08, 3:41 pm
  #179
 
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Timely discussion

This is a very timely discussion, and as I don't usually read this forum I only found this thread by reference from the Flying Blue forum. I was thinking of starting a thread somewhere very much along the same lines.

The extras you have to pay for award tickets have reached the point where they are undermining the very fundamental compact between airlines and flyers. Never mind what the small print says, most flyers consider the reward for a lot of (loyal) flying to be "free" tickets. That's how it's always been marketed (though less so now), and that's the perception. (KLM and Flying Blue are still doing it, and have a large display at Schiphol with American Express touting "free tickets within Europe," when they mean 25,000 award miles).

We of course know that tickets were never really free, but if you had to pay a few dozen dollars to get your free ticket, you shrugged your shoulders and were still happen. A small nuisance. Then fuel surcharges started creeping up, and the dozens became a hundred dollars, then two hundred and now much more than that.

At these levels the basic, fundamental point of frequent flyer miles is undermined. I've seen this in many threads on FT, I've seen this with my colleagues, with my friends and acquaintances. I'm also a participant in a private forum run by Flying Blue, and one topic that just won't die there is the issue of fuel surcharges on award tickets. The limit has been breached.

So what? European airlines have little incentive to change as all of them are guilty. Threatening to switch from KL to BA or LH is meaningless. But the reaction I get from sticker-shocked miles-users is: "why bother?" They feel they've been had, they're angry and are questioning why they should bother being loyal to an airline if their "free tickets" costs hundreds of dollars.

I include myself in that category to some extent. I'm pretty fed up with paying $800 for a business class redemption ticket from AMS to PVG (539 EUR on BA, 510 EUR on KL, which is $846 and $801 respectively). Yes, it's still a good discount from a regular fare. I understand fuel prices are high. I understand airlines need to survive. I know their sole purpose for existence is to make a profit. I have no problem with that at all. But I do have a problem with legalistic sophistry of calling part of the cost of transportation a fuel surcharge, and then charging that on an award ticket because only the "fare" is free.

Selling miles to third parties (especially credit cards) has been one of the few consistently cash-generating parts of the airline business in recent years. The shock and disillusionment that these astronomical surcharges cause is threatening to kill this goose, and leave golden eggs few and far between.

I still think as a matter of principle airlines should only be charging real taxes (that go to third parties) on award tickets. We're already paying a lot more for flying in the first place, so the miles we accumulate don't come cheap. I also know this may not be realistic given the current tough environment airlines face, but they do need to look at the reciprocity of loyalty that lies at the heart of frequent flyer programs.

Last edited by WearyBizTrvlr; Jul 31, 08 at 3:56 pm Reason: grammar
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Old Jul 31, 08, 3:52 pm
  #180
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Originally Posted by WearyBizTrvlr View Post
Selling miles to third parties (especially credit cards) has been one of the few consistently cash-generating parts of the airline business in recent years. The shock and disillusionment that these astronomical surcharges is threatening to kill this goose, and leave golden eggs few and far between.
Well stated. This is why I believe that legacy airlines are making a mistake of historic proportions by convincing many high-spending customers that collecting miles is no longer worthwhile. Mileage programs are the legacy airlines' strongest differentiator.
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