Abolition of Fuel Surcharges Good For All – Even The Airlines – But Won’t Lead To Cheaper Airfares

oil drillingEveryone’s getting excited about the potential end to the odious fuel surcharge airlines have been slapping onto airfares over the past decade to compensate, so they say, for record high fuel prices.

But now the oil price is plummeting – from USD115 per barrel to less than USD50 in just six months – public pressure has led to key airlines such as AirAsia, Qantas, Virgin Australia, All Nippon Airways and Japan Airlines to either withdraw or amend fuel surcharges.

AirAsia, for example, has dropped fuel charges altogether, while All Nippon Airways and Japan Airlines have lowered them.

In Australia, Virgin Australia has absorbed fuel charges into all its fares, treating them like any other cost, while yesterday Qantas announced lower fuel surcharges for frequent flyer redemptions.

Over time Qantas said it will “move to gradually restructure its international tariffs so that fuel surcharges are absorbed into base fares”.

Hallelujah and Praise the Lord – but will this actually lower the cost of flying (which, incidentally, is at historically low rates) as many seem to think?

The quick answer would be no. What will have a far greater impact is our old friend supply and demand.

If all goes according to plan, fuel surcharges will simply be re-incorporated into base airfares, essentially a zero sum game: ie no impact on overall price of flying.

And doing this is actually the smart way to go for airlines – acceding to public opinion while at the same time obscuring the charge so that consumer lobbyists can’t say “well fuel costs have fallen by 60% therefore your surcharge should fall by a similar amount”.

As for lower airfares as a result of cheaper fuel – well, that’s already happening – thanks to supply and demand combined with lower operating costs.

Into and out of Australia there are clearly more seats than passengers with demand passive at best and increasingly sensitive, it appears, to the falling Aussie dollar, which is slip sliding around US 79 to 80 cents.

An inept and inert Federal Government isn’t helping either with public confidence at constantly low levels, according to the Westpac-Melbourne Institute Index of Consumer Confidence.

Evidence of slackening demand and heavy competition can be seen in the extra low fares (including fuel costs), Qantas has just put on the market.

Ex-Sydney as part of its New Horizons Sale the following fares can be had: Singapore $649, Bangkok from $699, Hong Kong from $799, Los Angeles from $1290.

That’s as cheap as it gets out of Australia on a full-service carrier, and locals will find plenty more deals out there so realistically have no cause for complaint about the price paid.

It’s just that the fuel surcharge has always been seen as a rip-off – and there’s little question it was, especially immediately after its introduction by Australian airlines in 2004.

The carriers would advertise the ‘airfare’ then have the surcharge in brackets or fine print. They also refused to pay travel agents commission on the surcharge claiming it wasn’t part of the fare.

Both practices violated good business practice, were found to be illegal and stopped.

Numerous airlines, domestic and international, had to repay travel agents many millions in unpaid commissions.

But the stench remains, bad blood lingers.

Fuel surcharges are symbolic of airline trickery and it’s in the interest of all parties, especially the airlines, that they are abolished once and for all.

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