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:
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:
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?"
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.
Wonko – It’s not just inconvenient but it’s actually impossible. If you sell a ticket 10 months in advance, you’ll never know how much fuel will cost. Even if it’s 1 month in advance you can’t pin it down very well.
But the point is that airlines will just change the name of their surcharge to be something else.
Additionally the fuel cost will depend on how many people end up on the flight. If it is only half full then per passenger fuel “charge” is roughly double versus every seat filled.
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.”
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.
William – As stated to Nun above, this isn’t an issue. There are only percentage-based taxes domestically and no YQ surcharges that I’ve seen there. Internationally, there is no percentage-based tax so there is no tax impact.
You’re exactly right. This has everything to do taxes. CF thought this effort by DOT might kill fuel surcharges. I say, great!
CessnaDriver – I’ve already mentioned how there is no tax impact here, but I do agree with you that a lot of the ancillary revenue generators are giving the airline a double bonus by not being taxed on domestic flights. I think it is time for the government to reconsider the taxation situation on air travel at a high level, and maybe that includes changing what’s taxed and at what rate. But there isn’t an impact with the surcharge.
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.
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.
I’ll second that.
How they manage to charge such outrageous fares plus all their sneaky surcharges and still lose money baffles my mind.
Don’t airlines file new fares all the time? Just start using the new system going forward.
David SF eastbay – This is a huge misconception but it’s flat out wrong. You will never see a BA ticket to India that shows the same fare as everyone else but ends up being $1000 more because of fuel surcharges. Airlines are not allowed to break out fuel surcharges in the final price and can only show it in a breakdown that is not prominent.
David – But nobody will see this fuel breakdown when they are looking to compare flights. Instead, they’ll just see the final price so if everyone has the same base fare but BA has a much higher surcharge, then people will just see a much higher fare on BA.
True if people use online booking instead of a human travel agent. But the point is people may be thinking it’s all the same fuel surcharge amount that every airline charges when it is not. So everyone needs to do their home work and check different airlines for the total prices since the YQ isn’t known until the end.
The BA/AA is a good example how BA is flying all the segments, but if you book using the AA code you can save hundreds of dollars.
It shouldn’t matter if it’s a human travel agent or not. Nobody is allowed to quote airfare net of taxes, fees, and surcharges. If you’re a travel agent, the only place you’re seeing it net of taxes and surcharges is if you’re looking at the raw fare display. But any low fare pricing functions should clear that right up.
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!
While it’s generally true that fuel surcharges aren’t commissionable, that is just a business arrangement between the airline and the agency. The airline can offer whatever percentage it wants on the fare in its dealings with an agency. Most airlines offer 0% commission as standard these days, so it really is just built into a contract between the two parties if there is a commission to be had. True, that’s not the case everywhere in the world.
Have you done airline pricing? I have, and I can tell you that it’s much easier and almost always less costly to just put a surcharge on than it is to change every single fare in the system.
That may be true, but that’s not the passenger or government’s problem. If that is really the case, then the airlines need to re-design their systems.
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?
Chicago Chris – Spirit is a little different, but yes, that’s true. They actually file the fare as a Q surcharge instead of a YQ. The Q surcharge is actually a part of the base fare that is shown separated out. So even on domestic travel there are no taxation issues here because it’s a part of the base fare. Technically, since they show it as a fuel charge on their website, it would have to be closely tied to the price of fuel for it to continue to be shown that way.
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.
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.
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.
Judging from the comments, it seems that the misconception about this might be even worse than I thought. I’ll respond inline here, but I think I’m also going to do an air travel tax post for tomorrow.
LaHood and the DOT are idiots!!!! The industry is deregulated correct????
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?
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.
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
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.
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.
Are these the full prices or just the fuel surcharges? (I’m assuming its just the surcharges based on the price point.)
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).
[…] 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 […]
More disclosure… *sigh* There’s already so much disclosure out there that people don’t read it anyway. This is just going to provide more text that people won’t read.
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.