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TOURISM MATTERS: Airline fuel cost vs ticket prices

Adrian Loveridge, [email protected]

TOURISM MATTERS: Airline fuel cost vs ticket prices

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Having clocked up over 1 500 miles in a hired car during a recent trip to Kentucky, United States, it was fascinating to see the huge variation in fuel prices. I filled up only four times and the per gallon 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, as when the cost of a barrel of oil rises it seems that within seconds higher charges are passed on, but conversely when they fall, it appears to take an eternity until the customer benefits. And that takes me to the subject of airline fuel surcharges. We know many hedge or buy forward based on market predictions or simply gamble on what the cost of aviation spirit (Jet A-1 and Jet A) will eventually be at the time of actual consumption.

A leading travel agency group has written to the International Air Transportation Association (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 Association (UFTAA) pointed out 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 was estimated that airline fuel bills would fall this year by US$4 billion.

While not directly drawing a parallel, it reminds of a time in the 1970s when I was a tour operator in the United Kingdom specialising in motivational travel. We had put together a group to fly to one of the Spanish islands and at the last minute the chartered British airline had imposed, what appeared at the time, to be 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. Lo 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 at least theoretically it is easy for a traveller to identify the amount. UFTAA have not minced their words stating that “generally the cost for the fuel should as soon as convenient be included in the general operation cost, for example airfare (no plane can fly without fuel)”. “However, airlines continue totally shamelessly to misuse this ticketing loophole and thus manipulate the transparency of the ticket price”.

It added that “the tax box on the tickets has increasingly become a vehicle for various extra charges not included in the basic airfare 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.

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