Airlines explain why fuel charges remain so high when oil prices are so low
Oil has plummeted from around $110 to $60 a barrel in only the last 18 months, leading to much relief at the pump for the legions of regular Americans that rely on their vehicles for day-to-day transportation. But as oil has become more affordable, why are some airline still tacking on exorbitant fuel surcharges onto some fares — especially on international award travel?
Some would argue that jet fuel follows a different pattern than crude; however, those people would be wrong as the average gallon for high-grade aviation fuel has also dropped. Granted, the fuel only saw a 15-22% decrease which is much less than consumers are enjoying at the pump. There's also the large issue of hedging — many airlines hedge their bets when it comes to fuel, which can cause some big wins, and staggering losses. Southwest and Delta, for example, both saw losses from fuel hedges purchased at higher prices (but these losses were more than offset by the lower cost of fuel).
As a result, Delta has invested in its own refinery in order to keep its fuel costs lower than the industry average.
Airlines for America's latest data shows that per gallon fuel pricing accounts for 28% of airline operating expenses — the No. 1 cost of flight. Some airlines, such as Virgin America, fly primarily domestic and factor fuel into its fares. Southwest is emphatic about never having fuel surcharges, telling Road Warrior Voices:
Southwest Airlines does not have fuelsurcharges and we never have. No plans to implement them anytime in soon, either. Just like no checked bag fees and no change fees, we stayed true to our low fare roots when the other airlines implemented fuelsurcharges and did not follow the pack.
Other airlines have different cost burdens, and approach fuel surcharges on a case-by-case basis. A spokesperson for British Airways parent company said the conglomerate doesn't break down pricing by airline, so can't comment on any movements either way.
The spokesperson continued:
However, the fuel surcharge has never recovered the rise in fuel price over the last few years. The current decrease in fuel prices does not have an immediate, noticeable impact on our airlines given that they hedge a significant proportion of their fuel. In addition, the US dollar has strengthened recently against the euro and sterling, partly offsetting any savings that the lower prices may provide.
American Airlines noted that it only charges fuel surcharges where required by law, explaining:
The total ticket price is set by the market based on supply and demand. How much is base fare and how much is a carrier-imposed fee varies by market and is not tied to the price of fuel.
A Delta spokesperson noted in a call with RWV that pricing strategies can only be carefully discussed due to DOJ and DOT oversight, explaining further:
What I can tell you, is that we don’t use fuel surcharges. We use carrier-imposed surcharges in our fare displays with customers. It's a combined fare, as both base and carrier-imposed charges are based on the competitve conditions of the route. This applies around the world, and is set by our pricing team.
As a Quartz investigation highlighted, Delta charges fuel charges under a different guise, coding them as "YR" within the fare codes. For some fares, this charge made up nearly half the cost. In that same article, American Airlines pointed out that increased profitability has allowed the airline to pay down debt, improve services both in the air and on the ground, and to generally get their financial house in order.
Regardless, the fact of the matter is that fuel surcharges are a misnomer and regardless of what airlines call the fees, savings won't be coming to consumers any time soon. However, lowering these surcharges could save frequent fliers a lot of money when redeeming award tickets.
For now, airlines are enjoying record profitability thanks to lower oil prices and reduced capacity leading to packed planes and fewer open seats. And as demand remains strong, there's little incentive for airlines to compete on pricing.