As the price of crude oil plummets, fuel surcharge holds sway

fuel-priceAs the price of crude oil continues to plunge to record lows and all indications are that it is likely to remain low, the burning question on the air traveller’s lips must that which asks if and when airlines in good conscience would pass the savings back to their customers. In 2008, the price was as high as close to US$140 per barrel; today it has collapsed to US$30.

That situation has persisted long enough for the airlines to make the move, and it appears it is not likely to happen, not any time soon if at all. Giving back is so hard, indeed. The fuel surcharge was implemented, the argument being that the volatility of the oil price is something beyond an airline’s control. So much for understanding that it must be a cost of doing business! It is ludicrous to assert that because of that, the cost should be taken out to be borne by the customer. What other costs are not borne by the traveller as part of the fare?

Sure, the public can choose not to fly. But it is not as straightforward as that. In truth, the authorities too are neither keen to see the major airlines floundering. The repercussion can be widespread. Consider how some governments had very quickly doled out rescue packages to save a national airline on the brink of collapse.

The airlines know they are in a position of strength, supported by an international body that constantly warns about unprecedented losses when there should be more attention focussed on efficiency. In good conscience, it is only fair that when airlines pass on rising fuel costs to their customers, that they should similarly reduce the surcharge when the price of fuel falls. They are all too ready to cite the familiar and over-used counter arguments that even as the price of crude oil falls, they have not benefitted since they have already paid up too much in the past, that they have only passed on a modicum of the actual cost to their customers, and that they have suffered heavy hedging losses. So they took a bad gamble and the customers have to pay for their mistake. What, when they benefit from hedging gains?

Last year American carriers reported better than expected profits, largely attributed to the low fuel price and increased demand on the back of an improved economy, but none saw it reasonable to pass on the savings or part of it back to their customers as they rewarded their shareholders handsomely and argued that surpluses would be reinvested in their product in the interest of the customer.

Today there is the temptation to use the gain arising from the fuel surcharge to make up for the high costs in other areas of doing business. Take, for example, Air Canada, suffering from the fall in value of the Canadian dollar which results in reduced revenue vis-à-vis the high cost of foreign expenses. In fact, airlines can congratulate themselves on the clever implementation of the fuel surcharge model, which has led to a slew of other surcharges that are so ambiguously nomenclature that the consumers are nonetheless any wiser of what they are paying for over and above the fare. These ranged from so-called government levies to other operating requirements that airlines do not deem to be theirs to bear.

The good thing is that some governments recognize the prickly issue and have cautioned airlines to play fair with the customer and not misrepresent the cost of an airline ticket. As far as the air traveller is concerned, it is the bottom-line fare that matters, whatever the components. And as the fuel price keeps heading downward, there is no better time than now to do away with the fuel surcharge and other similar surcharges. Australian flag carrier Qantas and rival Virgin Australia have already moved in that direction. Of course, the consumer must expect a higher fare price when the cost of doing business, whether from a rising fuel price or other expenses, increases. Perhaps airlines fear losing the surcharge protection when in an open competitive environment, there will be pressure on them to improve efficiency and productivity.

Advertisements

About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran, author, editor and management consultant. Besides commentary on business issues and life-interest topics, travel stories and book reviews, genres include fiction, poetry and plays. Nature lover who abhors cruelty of any form to animals, and a tireless traveler. Above all, a dreamer.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: