Having clocked over 1,500 miles in a rental car during a recent trip to the state of Kentucky in the USA, it was fascinating to see the huge variation in fuel prices. I filled up only four times and the per gallon (US) cost varied from US$1.96 up to a high of US$2.57 for 3.8 litres. Ironically the lowest price was on a very rural secondary road, miles from any major city, fuel storage facility or refinery.
I have never really understood how prices are arrived at, when the cost of a barrel of oil rises, it seems that within mega-seconds higher charges are passed on, but conversely when the price decreases, it appears to take an eternity until the customer benefits.
And this introduces the subject of airline fuel surcharges. We know many ‘hedge’ or buy forward based on market predictions or simply gamble on what the eventually cost of aviation spirit (Jet A-1 and Jet A) will be at the time of actual consumption. A leading travel agency group has written to the international airline body (IATA) to ask why some carriers are continuing to add fuel surcharges to ticket prices when the cost of fuel has plunged.
The United Federation of Travel Agents (UFTAA) pointed out that that the cost of a barrel of oil has fallen from over US$110 last year, to US$40, yet most airlines are continuing to charge an additional US$25 to US$450 per ticket for fuel. In an open letter to IATA, it claimed that even using their own sources it estimated that airlines fuel bills would fall this year by US$4 billion.
While not directly drawing a parallel, it reminds of a time in the nineteen seventies when I was a tour operator in the UK, specialising in motivational travel. We had put together a group to fly to one of the Spanish islands and at the last minute, the charter British airline had imposed what appeared at the time, a disproportionate fuel surcharge. I sat down with a calculator and worked out what was the A1 cost for the entire return based on a nearly full plane. Woe and behold the surcharge amounted to more than the total fuel needed. I wrote to the airline’s managing director for an explanation and copied it to the general British media. Many newspapers carried the letter as headline news and within hours most of the additional surcharge was removed.
The special YQ code on airline tickets was introduced to allow carriers to surcharge when there was a sudden increase in oil prices, so theoretically it is easy for a traveller to identify the amount. UFTAA have not minced their words stating ‘generally the cost for the fuel should as soon as convenient be included in the general operation cost e.g. air fare (no air-plane can fly without fuel)’. ‘However, airlines continue totally shamelessly to misuse this ticketing loophole and thus manipulate the transparency of the ticket price’.
Adding ‘the ‘tax box’ on the tickets has increasingly become a vehicle for various extra charges not included in the basic air fare either to distort the price transparency or perhaps to serve as a loophole for tax evasion’. The letter closes with ‘how long will this charade be tolerated by the consumers’.
Of course there are always at least two sides to every story and perhaps it’s now finally time for the airlines to respond?