Airlines have ever-higher, and hidden, fuel surcharges
One of the biggest, and least discussed, airfare components is the fuel surcharge which is often hidden by obscure ticket-coding. And it’s driving the high cost of international flights.
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We’re used to nickel-and-diming when it comes to airfares. We’re also used to the bait-and-switch of misleading lowball prices. But really, we don’t like being toyed with.
No wonder the current thinking on fairness in airfare advertising is that consumers only want the bottom line. That was the point of the Department of Transportation’s full-fare disclosure rule when it took effect in January 2012.
The bottom line isn’t necessarily the headline, however. Focusing on the total makes it easier to overlook the stories hidden in the details. One of the biggest, yet least discussed, components of your airfare is the fuel surcharge.
Then again, you might not be able to find it even if you try. Airlines rarely use the words “fuel surcharge,” even in the fine print. It’s referred to as “YQ” or “YR” on the breakdown of costs. How it’s calculated, which airlines impose them and when ... all of it’s a mystery. Even when asking direct questions of the people in charge of these surcharges for this report, I got few definitive answers.
The surcharge is what turns that Newark-to-London flight from a base fare of $383 to $842, even before taxes and fees. And some travel agents report the added cost has been a deal-breaker for many potential international travelers. If officials and watchdog groups believe transparency means giving travelers all the information, it seems the surcharge is a very big — and very missing — piece.
The fuel surcharge flies under the radar when it comes to regulation and has ever since it was imposed during the energy crisis of the last decade, when prices for oil rose above $100 a barrel. At the time, cruise lines took most of the heat in the travel industry for their $10-to-$15 surcharge per passenger per day on sailings. The public drew the line when cruises tried to extract surcharges from customers who had already paid for their trips.
The airlines first imposed the fuel surcharge on their cargo business, but soon added it into passenger flights. Given the YQ or YR coding (nobody has been able to explain the meaning of “YQ” and “YR”) and the practice of bundling it up as a general “carrier-imposed charge,” most passengers didn’t realize that it existed.
Or how much it added to their ticket prices.
The fuel surcharge can successfully hide within the total. That is, until it is the total, as frequent fliers who were trying to book free tickets with their accrued mileage discovered. They were stunned to learn that their free ticket now cost up to $1,200 round trip in business class, as airlines began imposing the surcharge on frequent-flier rewards to recoup fuel costs.
Surcharges are common among European and Asian carriers. While most U.S. airlines don’t yet impose such fees on their reward tickets, other carriers in each frequent-flier alliance — Star Alliance, OneWorld and SkyTeam — all have members who do charge these stiff fees.
In 2008, British Airways and Virgin Atlantic settled a class-action lawsuit in U.S. District Court for the Northern District of California that claimed that not only were their surcharges unreasonable but that Virgin and British Air had engaged in price fixing.
A new case against British Airways is currently pending in U.S. District Court, with members of its frequent-flier club claiming that “the fuel surcharge is not a fuel surcharge, it’s more like a British Airways profit surcharge and that it’s not based on the cost of fuel,” according to David Stellings, an attorney representing the frequent fliers. “It’s just a source of revenue for the company.”
In December, the court denied a request by British Airways to dismiss the suit.
Airlines and their experts like to point out that fares are actually lower than they were five years ago. The numbers don’t entirely track, however; they haven’t been adjusted for current dollar values, and also haven’t taken into consideration all the add-on fees and charges.
Airfares have gone up 10.7 percent the past five years, after adjusting for inflation, according to an Associated Press analysis of data from the Airlines Reporting Corp., which processes ticket transactions for airlines and more than 9,400 travel agencies, including websites such as Expedia and Orbitz.
Fees for checking bags, getting extra legroom, boarding early or purchasing a pair of headphones — instituted as revenue generators post 9/11 as airlines suffered financial losses — now total $3.3 billion a year for U.S. airlines.
Also padding the bottom line: Airlines are paying 7.2 percent a gallon less for fuel than they did last year, adjusted for inflation, as they tout strides in fuel efficiency and energy savings.
But those savings aren’t being passed along to passengers.
Congress is butting heads with the Department of Transportation over the definition of transparency and just what the public needs to know. The Transparent Airfares Act of 2014 (HR-4156), was passed by the House on July 28 and now goes to the Senate for consideration. The gist of the legislation essentially is to nullify the DOT’s 2012 full-fare disclosure rule, which allowed airlines to return to their former practice of advertising lowball base-fare prices and listing the fees, taxes and surcharges later. The DOT and those who support the current full-fare rule point out that it doesn’t preclude airlines or any other travel-services seller from itemizing what goes into the total price; the total just must be the most prominent feature displayed.
I did some research to see exactly how sellers were displaying fares, fees and taxes.
I booked a hypothetical round trip from Newark Liberty to London Heathrow, departing a month from my booking date. I used expedia.com, orbitz.com and United’s website.
The total, on all three sites, was nearly the same: $1,117.20 — give or take $1.
The significant differences showed up after I chose my flights. All then showed the total (on a page that mostly displayed offers to add on hotels, rental cars, tours — but that’s another story) broken down in different ways.
Taxes and fees: The price wasn’t broken into parts, but under “total due” was a “taxes and fees” hyperlink. The pop-up window offered a long list of definite charges as well as possible additional fees. The list was a general one, prices weren’t shown for my particular flight. Some fees are the same no matter what your ticket price — for example, the 9/11 security fee, a flat $5.60 per one-way flight. Others were vague, such as “passenger facility charge of up to $18 may apply, depending on the itinerary chosen.”
In the vain hope that there might be more explanation somewhere, I went a little further toward booking the flight and got to a page that made me check a box, acknowledging that I would be charged $1,118.20, with a hyperlink that advertised: “view details.” That hyperlink brought me to the “details” of my payment: Airline ticket (1) $1,118.20.
Another line, below that, explained: “(Adult: 1)”
Total due at booking: $1,118.20”
Well, that helped.
Taxes and Fees: $714.20.
Wow. No wonder the airlines want to get rid of that DOT rule. What marketer wouldn’t want to advertise a flight to London for just $404, rather than $1,118.20?
The taxes and fees were not further itemized.
Additional taxes and fees: $255.20.
Wow again. Why was the breakdown in charges so radically different from Expedia’s?
Another hour of digging and I found a clue to a possible answer in United’s “flight rules.” It was a $320 item in the “surcharges” category that was expensive enough to explain the difference from the two base fares quote.
It was the fuel surcharge, the YQ. Almost at the end of an eyeball-spinning litany of surcharges imposed for peak-period this and holiday-period that, was this “explanation”:
“ — Note: YQ fee may apply.
“Originating Area 1, a surcharge of USD 320 per direction will be added to the applicable fare for travel.”
Ditto for flights originating in Area 2, whatever that was.
Apparently United included the fuel surcharge in its price for the “flight” or “1 adult” or “base fare” or whatever you want to call it. Expedia included it in taxes and fees category. Neither it nor Orbitz mentioned it in any breakdown.
Unfortunately, the actual total airfare didn’t add up when I did the math. The actual fuel surcharge, I discovered when looking at the very good and clear website matrix.itasoftware.com, was $458 round trip — not $640. When I asked United for clarification on what exactly the “320 USD” referred to, a spokesman explained “$320 reflects the carrier-imposed surcharge that applies when tickets are issued by other carriers.”
Showing the fuel surcharge
Are there rules?
The fuel surcharge doesn’t have to be listed separately, according to the DOT’s full-fare rule.
“Airlines and OTAs are not required to list a fuel surcharge separately,” a DOT representative said in an email, referring to online ticket agencies. “If an airline has a fuel surcharge, DOT’s full-fare advertising rule (14 CFR 399.84) requires that this amount be included in the advertised/listed price. The airline or OTA is free to also break down the components of this total price (including fuel surcharge) if it wishes, but those components must be less prominent than the total.”
If the seller does list the fuel surcharge, “the presentation format cannot imply that this item is a government fee or tax. However, a fuel surcharge maybe combined with other carrier charges.” Several airlines and OTAs have been fined for lumping carrier charges into the “taxes and fees” category.
That is why United says it displays its carrier-imposed surcharges in the “base fare” line item, an airline representative said, “consistent with DOT guidance.” United points out that “despite the differences in characterization, United and OTA display the same all-in price. The difference in YQ characterization appears on the purchase page.”
The guidelines for setting fuel-surcharge prices are nebulous.
“Since airfares have been deregulated, we do not regularly review airfares and surcharges,” said the DOT representative.
But within its regulations, the DOT does state that:
“When a cost component is described as a fuel surcharge that amount must actually reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier above some baseline calculated based on such factors as the length of the trip, varying costs of fuel, and number of flight segments involved.”
Fuel surcharge ‘a ruse’
Without oversight, airlines have taken increasing advantage of “fuel” as a line item. George Hobica of Airfare Watchdog, a website that has been helping fliers find good deals for a decade, categorizes the fuel surcharges as a “ruse,” a description many consumer groups echo.
Until about 2011, airlines covered 60 percent to 70 percent of oil prices through fares; now most U.S. carriers pass on 80 percent or more of the price to consumers, said David Fintzen, senior airlines analyst with Barclays.
When one airline raises fares, the others typically follow, which makes finding a deal challenging. In 2012, for instance, half the fuel-related fare increases attempted by U.S. airlines were deemed “successful,” according to Barclays, because nearly all major airlines quickly followed by raising their prices as well.
In its annual report for investors in 2013, United notes that “aircraft fuel expense decreased $793 million, or 6 percent, between 2012 and 2013, including a 1.7 percent decrease in fuel consumption and 4.3 percent decrease in the cost of fuel.”
While DOT doesn’t regularly monitor prices and surcharges, “we have requested the underlying cost estimate information for fuel surcharges for some fares,” the DOT representative said. “Additionally, if a fuel surcharge that comes to our attention appears to be based on an unreasonable estimate of per-passenger fuel costs, we would ask the carrier to provide the basis for the amount.”
The DOT had enough complaints and questions about surcharges that it was compelled to add guidelines:
“We wish to remind carriers that amounts listed as charges for particular services must accurately reflect the actual costs of the service covered. Therefore, the ‘fuel surcharge’ …. which is associated with a trans-Atlantic trip ... must be an accurate reflection of the fuel cost over some reasonable baseline for an individual passenger for that trip and the carrier should be prepared to detail the services and costs per passenger associated with its ‘passenger service charge international.’
“In a similar vein, we have observed that carriers may add ‘fuel surcharges’ or other fees to their frequent-flier ticket offerings, some in an amount of several hundred dollars. Any such charges assessed also must be fairly disclosed and an accurate reflection of the actual costs as described above.”
Ben Edelman, an associate professor at the Harvard Business School and an attorney, has filed complaints with the DOT about various aspects of fuel surcharges, including a complaint in 2013 against British Airways, citing what he called “implausibly high” surcharges, which in some cases came to 71 percent of the total ticket price.
He acknowledged that DOT has a requirement that the surcharge to be reasonable.
“The rule is in place,” Edelman said, “but again, there is a question of whether airlines comply with this rule.”
Does the fuel surcharge really matter?
Hobica said most travelers don’t complain about it — unless they’re frequent fliers on the hunt for reward tickets. Then they’re loud, and they can even be litigious.
The feeing of reward flights has contributed to the devaluation of frequent-flier miles and programs, according to many disgruntled air warriors. Reward flights have so many charges nowadays that the DOT also added “guidelines” about how such tickets should be advertised.
“Government fees and taxes collected in connection with frequent-flier award travel can be substantial, and a failure to properly disclose them may be highly deceptive to consumers,” the DOT warned in the clarification. So even for reward travel bookings, the government taxes and fees as well as carrier-imposed charges (fuel surcharge, peak-period travel surcharge, etc.) should be reflected — either the specific price or as a range. The cash and the miles required must be displayed together and given equal prominence.
Travelers adapt. And frequent fliers who want to use their “free” rewards have created charts and plans for avoiding hefty fuel surcharges — booking flights only on airlines in their frequent flier club’s alliance that don’t assess the fee. While most of those requiring the surcharge are foreign carriers, Edelman said the practice is beginning to creep into some of the U.S. carriers, including American Airlines.
But most other travelers can’t do an end-run around the surcharges, which are significant for trips to Europe and East Asia — as high as $1,200. For many leisure travelers, the fuel surcharge has been a deal-breaker.
Jill Schensul is a reporter at The Record in Hackensack, N.J.