Why is the DOT Wasting Time With Fuel Surcharges?

Another week, another wasted effort by the Department of Transportation (DOT). This week, it’s a look at the latest guidance on fuel surcharges. Surcharges aren’t understood very well by much of the traveling public, and it seems like the DOT has some of those same misconceptions. I just can’t believe the department is bothering with this.

The DOT has now decided that fuel surcharges “must accurately reflect the actual costs of the service covered.” What exactly does that mean? Well, if you read the text of the notice from February, you’ll see it explains that the fuel surcharge must “reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier above some baseline calculated based on such
factors as the length of the trip, varying costs of fuel, and number of flight segments involved.”

In theory, this effort makes some sense. If an airline is going to have a fuel surcharge, then it should be directly tied to fuel. But in practice, this is impossible, it’s just going to create more work, and there is zero impact on the customer. Seriously. Here’s what a fare display looks like on Delta.com right now:

Delta Availability with Price

Do you know what the fuel surcharge is, if any, on this ticket? No, because it has been years since airlines were allowed to display a price net of surcharges. Anyone who says, “I saw a $400 fare but then they tried to screw me with $400 in surcharges” in recent years is either lying or not from the US. That hasn’t been legal here in years. If there is a surcharge, it’s baked into that price anyway.

What will the airlines do with this clarification? They’ll probably kill fuel surcharges, since we all know that it’s just about impossible to get a reasonable estimate on the price of fuel. It can take pages just to explain an airline’s hedging strategy, and the idea that an airline could know months in advance how much fuel will cost is silly.

So what will happen instead? They’ll just change the name. In that Delta example from above, here’s the breakdown that you’ll see only if you click the link for the specific fare breakdown:

Delta Fare Breakdown

See that “International Surcharge”? It’s filed the same way as other airlines file a fuel surcharge but it just has a different name. And since this flight is international, it’s not lying to say that it’s an international surcharge.

In other words, nothing is going to change. You aren’t going to see some huge windfall with ticket prices plunging or anything like that.

I know what you’re wondering. Why not get rid of this silliness and just increase the base fare instead of using a surcharge? It’s mostly because it’s just easier to do it this way. The way the systems work, it’s so much easier to just slap on a surcharge than it is to change a bunch of fares or even file new ones in thousands of markets.

For most travel purchasers, there is no difference anyway so it shouldn’t matter which method the airlines use. The only potential impact is for those corporate clients that have discounts which apply to the base fare but don’t apply to fuel surcharges. But that’s a business issue and certainly nothing for the regulators to get involved with.

In short, this will mean absolutely nothing for the average traveler, but it will probably give the DOT a reason to hire a bunch of new audit employees. Meanwhile, the airlines will just ditch “fuel” surcharges and replace them with something else. What a waste of time and effort.

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57 Comments on "Why is the DOT Wasting Time With Fuel Surcharges?"

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Wonko Beeblebrox
Guest

If it is a fuel surcharge, then it should be directly tied to the cost of _fuel_.

You basically seem to argue that it is inconvenient (on the airlines) to force that to be true. That’s not my problem.

Me? I like the proposed new regulation.

Nun
Guest
You are misinformed. We have airlines pulling dirty tricks with YQ. (a) For example LH had some policy where on some tickets you couldn’t be refunded the fuel surcharge after cancelling but they do refund the fee. (b) They also play tricks with award tickets, where the fuel surcharge is 5 times the price of the fare and it’s paid by award travelers. (c) Then you have cases where fuel prices drastically fall (2009) and the fuel surcharge either remains the same or increases. (d) I’m told that the YQ is also used to work around contracted fares. (e) Finally… Read more »
Nun-
Guest

Sorry. Item (a) should have read, “For example LH had a policy where on some tickets you could be refunded the fare but not the fuel surcharge.”

William
Guest

Nun’s reasons are all right but the reason the DOT cares is the tax one. YQ is not taxed; fares are. To fix this, a better method would be to tax the fuel surcharges at the same rate as the fare, but absent legislation to do this, the DOT is doing the best it can to preserve its revenue base.

CessnaDriver
Guest
I am wondering how much of this has to do with the excise tax? If the DOT can get airlines to publish their total fare into the base fare without any fuel surcharges, the government will collect more excise tax collections. Not criticizing the government for doing it if that was the case, because the realty is excise tax collections are down as a percentage of total travel related passenger revenue which excludes truly optional fees such as wifi and drinks. The way the excise tax is currently written, it only encourages the unbundling of fare products. Note NK’s strategy… Read more »
Demo
Guest

You’re exactly right. This has everything to do taxes. CF thought this effort by DOT might kill fuel surcharges. I say, great!

Dan
Guest
As others have suggested, there’s more going on here than meets the eye. First, I’m a big fan of truth in advertising. If you call it a fuel surcharge, treat it like one. Nobody does. Call it a “screw you over” charge (that’s exactly what it is) and I’ll be happy. This YQ game just sucks. It causes problems in lots of areas… take BA’s North America – India fiasco a few years ago. They claimed that their $40 base fare + $500 in YQ was a “mistake” because the fare was pretty much zero. Um, nice try. That might… Read more »
Sanjeev M
Guest

Yes BA and LH award tickets are useless for this reason. And they can get away with it but not the US carriers? I don’t know, but I don’t buy these YQ games at all when it comes to award availability.

But if I’m just paying for a ticket, I agree with Cranky that it doesn’t matter where the addition is done as long as I see the total inclusive price.

I know the FT and MP communities who love outsmarting these tickets by trying to dump YQ will hate this move, but this legislation might be a good thing actually.

FBKSan
Member

Agree on the award ticket issue–this is an area where fuel surcharges are an issue encountered by many run-of-the-mill travelers. As you suggest, Cranky, a rule that discourages airlines from charging fuel surcharges and instead substituting to another charge (“international”) won’t make the charge go away. But it *might* make it a bit harder for airlines to justify passing these charges on to customers. I doubt we’ll see BA and others dropping their ridiculous award “co-pays” as a result, but I’m okay with giving the airlines an incentive stop dumping extra charges into the “fuel surcharge” category.

Scott
Member
Air Canada are a huge culprit on this. Their #1 trans-oceanic route (YYZ-LHR) has a fuel surcharge that actually exceeds their published fuel costs per seat (per their latest financials). Buy a J seat, and the fuel surcharge doubles again! I’m sure the flying public doesn’t have a problem with add-ons to the fare that must be remitted 100% to another agency/organization (such as AIF/PFC, Security Charges, actual sales/excise taxes). However, the invention of pseudo-charges like “FUEL SURCHARGE” (see above), “NAV SURCHARGE” (this money is not remitted $ for $ to NavCanada, and Canadian navigation fees have remained relative constant… Read more »
jboekhoud
Member

I’ll second that.

How they manage to charge such outrageous fares plus all their sneaky surcharges and still lose money baffles my mind.

David SF eastbay
Member
Why can’t airlines just pay their bills by the fare and not have to add a fuel surcharge, it’s all a scam to get more money from you while keeping the base fare looking low. You book a BA ticket to India that shows the same fare as everyone else, but can pay $1000.00+ more round trip as a fuew surcharge. Take EI/UA/DL out of the New York area to Dublin. UA/DL charge a 403.00 fuel surchange one way and EI 6.37. Sounds like UA/DL need to hire EI to buy fuel for them since EI only needs to add… Read more »
Jason D
Guest
Did you read the article? “It?s mostly because it?s just easier to do it this way. The way the systems work, it?s so much easier to just slap on a surcharge than it is to change a bunch of fares or even file new ones in thousands of markets. ” Basically, it is a lot of trouble, time, work, and money to refile all valid fares out there, so adding fees (keeping the basic fare codes and structures) is the way they change prices in the short term. And with the regulation in the US requiring that the final price… Read more »
jboekhoud
Member

Don’t airlines file new fares all the time? Just start using the new system going forward.

pferdinand39
Member

In most other business, costs are fiqured in, and you get a total price, plus maybe some taxes thrown on top. Having worked for four airlines (years ago)I’m not sure they are run like businesses.
But isn’t the fuel surcharge nonsense another way to avoid paying travel agents more commission, like the cruise industry. Although not all agencies earn air commissions here, that’s not the practice in other countries.
And don’t get me started on how it is another way to make my frequent flier miles even more worthless!

mandel.jerry1
Member
“I know what you?re wondering. Why not get rid of this silliness and just increase the base fare instead of using a surcharge? It?s mostly because it?s just easier to do it this way. The way the systems work, it?s so much easier to just slap on a surcharge than it is to change a bunch of fares or even file new ones in thousands of markets.” Cranky-Are you kidding? For revenue management, airlines change their fares minute by minute and their computers can easily handle fuel charge data plugged in. On another subject, travel writers have shown that the… Read more »
Chicago Chris
Member

I’d love to get some discussion about NK’s fuel disclosure on its website. If I’m reading it correctly they’re simply disclosing how much fuel will cost, but under this regulation would they have to do away with it and just roll it all into the base fare?

Bulldog
Guest
I’m surprised at the uncharacteristic lack of nuance in today’s post. YQ is, as many have already noted, used by the airlines for a number of reasons other than ease of fare adjustment. From their perspective, it is used to avoid tax, decrease frequent flyer mile liability, and dilute corporate and other discounts (which are only assessed on the base fare.) And all these things are ‘hidden’ from demand-altering behaviour because up till now the government hasn’t cared. Regardless of whether you agree that the travelling public has an interest in changing these policies — and I do — surely… Read more »
chinger
Guest

I would hardly say it is “hidden” from demand altering behavior. Additional fuel surcharges will increase the final cost of a ticket (award or normal), and would certainly alter our demand behavior. While I do agree that it is highly annoying and that a better way should be found, it is, unfortunately, an imperfect solution to an imperfect problem.

Fred
Guest

To all of you who are complaining about the fees and why they are charged instead of the base fare, there actually are good reasons for this – see here http://www.flyertalk.com/forum/16605667-post28.html
(I won’t try to explain them here myself).
But the point here isn’t that such fees are necessarily right or wrong, but just that renaming them solves everything and they aren’t really going away.

Nun-
Guest

Fred- Many of us are fully aware of what’s written there. That doesn’t change any of the items I listed, especially (e) regarding tax avoidance. Frankly, the arguments stated there indicate an IT issue and airline laziness.

Fred
Guest
Several things: -Yes, it is partially IT issues. But those trace back to the whole airline ticket fare/distribution system so there’s not much that can be done about it. -(a) This is talking about US policy, so LH policies regarding refunds and the like are a different issue. US-based airlines (in my experience) are actually good about refunding all taxes/fees/charges minus a cancellation fee. -(c) Again, airlines will just rename it to ‘international surcharge’ or ‘stupidity surcharge’ or whatever, and nothing else will change. -(d,e) Those aren’t consumer issues – those are government and policy issues, which could be changed… Read more »
Nun
Guest
I’m sorry. I shouldn’t have listed LH. (I was confused by the case where LH tries having it both ways. For awards, they don’t consider the YQ as part of the fare, so you pay it. For nonrefundable cash tickets though, they do (did?) consider it part of the fare. If you cancel the ticket they keep the YQ. More at http://www.flyertalk.com/forum/miles-more-lufthansa-austrian-swiss-other-partners/1057900-tickets-issued-08-march-2010-yq-wont-refunded-anymore-non-ref-tix.html ) The defenders seem to think the only YQ issue is awards. OK, fine, but that doesn’t change the fact that it’s deceptive. There must be accuracy in labelling just like any other industry. Otherwise it is, by… Read more »
Robert Benson
Guest

LaHood and the DOT are idiots!!!! The industry is deregulated correct????

Stop the fraud
Guest
It’s about time that the DOT did its job. *ANY* other industry would have not been allowed to get away with this fraud for so long; could you imagine a Supermarket adding an arbitrary surcharge (which is how this surcharge is calculated), calling it “fuel”, and getting away with it? Every state DA would be immediately shutting it down, but the airlines are exempt from state laws. And the DOT is generally asleep. Oh, and why do I care? Because some frequent traveler programs charge you the “fuel” surcharge on redemptions. And the 20% off coupon the airline gave me… Read more »
Jason H
Guest
It is in fact not fraud. They display it as a fuel surcharge and that is what you see. If they called it the “Soft cuddly kitten” surcharge when there were no soft cuddly kittens, then it would be fraud. I agree that the YQ is annoying and in some cases ridiculous, but it is not going away anytime soon. With the volatility of Jet-A it would be financially irresponsible for an airline not to try to recoup that cost from the passengers they are carrying. I’d also like to point out that your number 4 is a bit of… Read more »
Oliver
Guest

Jason, yes, jet fuel prices are volatile. But given that, if I buy a ticket today, how does the airline know what the right “fuel surcharge” is to recoup the cost of fuel for the flight in, say, December?

Jason H
Guest

That was the point I was trying to make. Where did you think I said otherwise? The YQ is going to stay around and the only airline I know of that had a compelling and interesting ‘solution’ got that solution smacked down by the DOT.

Scott
Member

If they say it’s a fuel surcharge and it exceeds the total fuel cost (AC, BA to name a few), it’s fraud. It’s like saying the “10 cuddly kitten surcharge” and only getting 5

chinger
Guest

Which goes right back to the problem of how do you predict the cost of fuel, which goes right back into why have a surcharge at all, why not just increase the “base” fair, even though at the end of the day, the amount we pay is the same.

Stop the fraud
Guest

Let me give you the full picture of point 4:
LHR-YYC one-way GBP 180
YYC-LHR one-way GBP 276
total of the above: GBP 456

LHR-YYC roundtrip GBP 359

Are you convinced now that it is a scam? The COST of fuel to BA is no different between the two scenarios, yet the “fuel” surcharge is 27% higher with the roundtrips.

chinger
Guest

Are these the full prices or just the fuel surcharges? (I’m assuming its just the surcharges based on the price point.)

Jim
Guest
This is not a waste of time, it’s a valid regulation designed to stop airlines from deflecting customer anger at their fares. Fares are going up, and customers will complain. However, if the fuel surcharge goes up, customers will not complain, knowing that the price of gas is increasing and thinking that the extra money is going for the fuel. By increasing the fuel surcharge instead of the fare, airlines are making customers think that they are not keeping the extra money. If the airline wants to have a fuel surcharge, that money better be going for fuel, just like… Read more »
Oliver
Guest
I have never worked for an airline. If the claim is that changing base fares is so (much more) difficult that a fuel surcharge that’s not representative of the actual cost is the better way to react to changes in oil prices, why is that if airline XY increases their fares, often all major competitors match that increase within hours or days? Is that always done via surcharge increases, or are they suddenly able to push the magic +$10 button and adjust the base fares? Personally, for revenue tickets ultimately the base price is what matters (and yet if there… Read more »
Tomstrr
Guest
Crank wrote “And since this flight is international, it?s not lying to say that it?s an international surcharge..” To knowingly mislead or deceive is lying. Its a lie. He also wrote: “the idea that an airline could know months in advance how much fuel will cost is silly.” Not silly at all, to most. The idea that airlines might think so could explain a great deal of their problems. Anyone, with sufficient money, can obtain a specific price, for a specific amount of fuel to be delivered on a specific data. One might not want to, they might bet wrong.… Read more »
Jason H
Guest

The issue with your statement about sufficient money being able to buy options is that you need the money. With airlines that isn’t a given. AA can’t buy options easily right now. VX likely doesn’t have the capital for it. DL does buy the options and you can see it in their fares against their Skyteam partner AF/KLM who not only haven’t hedged as much, but also have to pay the increased European cost of fuel (and now carbon taxes).

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[…] seeing the comments on yesterday’s post about fuel surcharges, it dawned on me that there’s probably not a great understanding out there around exactly […]

Thank you CF
Guest
Still amazed that people think YQ is for the airlines to avoid paying government taxes, even when confronted with evidence that it isn’t. LOL Cranky, did you see the footnote at the end of the DOT’s guidance? 2 For example, descriptions such as the following would be acceptable: ??Fare includes a fuel surcharge. On average our passengers paid $xx.xx more for fuel during 2011 in their ticket price than they did in 2000;?? or ??Fares include a charge for fuel. On average in 2011 our passengers paid $xx.xx for fuel as a part of their ticket price.?? Of course, such… Read more »
David SF eastbay
Member

Cranky I can’t reply to your last reply to me so here’s a new comment on the same subject.

A human travel agent who does bookings all day will know that BA charges more YQ tax so can guide their client to another airline they know charges less YQ tax. An online booking tool would not do that so people need to know there is a difference who you fly can effect the overall cost of the ticket because of what they charge for YQ.

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