Posted by Seth on March 22, 2012 under News | 
It wasn’t too long ago that the concept of the fuel surcharge in the context of airline tickets simply didn’t exist. The full price of the transaction was simply the ticket cost and the mandated airport and government taxes or fees and that was that. A few years ago airlines realized that they could manipulate the pricing systems a bit, charging a fuel surcharge rather than just raising fares and an ugly trend began. In theory the fuel surcharges would be relative to the actual costs of fuel and would decrease when those costs decrease, but that sort of behavior has not been particularly common.
Perhaps the most adversely affected group from these fees are those traveling on corporate contracts. Those deals allow for discounts on the fare paid but the taxes and fees are not subject to discount. By shifting the cost to the fuel surcharge the airlines have effectively killed a chunk of those discounts. The US government has finally caught on, however, and they don’t seem too impressed.
In a notice published in the Federal Register two weeks ago the Department of Transportation put the airlines on notice that they consider the current practice to be a violation of the unfair or deceptive trade clauses which they have the power to enforce. To that end, they are proposing that the airlines must change their behavior in two significant ways.
First, all fuel surcharges and any other fees which the airlines keep for themselves must be identified separately from fees which are paid to the government or airport authorities.
We have found, in reviewing airline Web sites, that many Web sites which detailed additional fees labeled all additional charges, government and carrier-imposed, as taxes when in fact carrier-imposed fees were often the major portion of these fees. Such displays were deceptive and in violation of section 41712.
This should help clear up the fact that a $100 base fare plus $650 in "taxes & fees" for a NYC-London flight is actually $550ish to the airline and $200 in real taxes (still obscene, but way better than the old way it was shown). Interestingly, they do indicate that it would be acceptable to have a single entry called "Taxes and carrier-imposed fees" rather than just "Taxes and fees"
Second, the airlines will be required to align the fuel surcharge component with the actual cost of fuel to provide the service, or at least a near approximation.
When a cost component is described as a fuel surcharge, for example, 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.
…
Therefore, the “fuel surcharge” of $476 in the above example, which is associated with a transatlantic trip originating in New York City, 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 other words, the numbers have to actually line up with something that vaguely resembles the cost of the service being offered. Take, for example, the fuel surcharges levied by United Airlines for non-stop flights from Newark to four nearby destinations in Europe (all rates are one-way for travel in late March 2012):
- Dublin – $101
- London – $219
- Paris – $248
- Amsterdam – $248
With a spread of less than 500 miles from the shortest to the longest, it is clear that the numbers do not reflect the actual costs of the fuel. According to the company’s 2011 10-K filing the cost for fuel averaged 4.77 cents per ASM. That puts the actual fuel cost per seat for the above flights somewhere around $150. And that assumes that there is a direct correlation from the fuel costs to the miles flown, something that doesn’t actually work out quite so directly. Plus, the DoT seems to think that the "surcharge" should actually reflect the difference over some acceptable baseline, not the entire fuel cost.
This might mean that base fares go up while fuel surcharges go down, leaving the final fare the same for most folks. Not a huge deal in the end if the number is the same, but at least the fares will more properly reflect the reality of what is being offered.
Posted by Seth on September 28, 2011 under Flying, News |
The United Kingdom has long been known for a rather brutal tax known as the Airline Passenger Duty ("APD") assessed on departing passengers. The fee is variable based on the distance of the flight and the cabin of service, with premium cabin passengers paying twice as much as folks riding down the back and the cost for travel to the USA at £120 (~$180 these days) up front. The tax is, depending on who you ask, designed to offset the environmental impact of all the flights or to simply discourage people from flying.
Apparently, however, rather than meeting either of those goals in Northern Ireland is has a different effect: It drives traffic across the border to the south. Departures from Dublin incur minimal taxes (~$5 these days) and shuttle service between Belfast and Dublin is cheap and readily available. The net effect is that passengers are simply skipping out on flights from Belfast and the British Treasury is getting none of the cash.
That’s changing now as apparently someone finally realized that it is possible to tax a product out of existence. The government has chosen to slash the long-haul APD for flights out of Belfast. Currently the only service affected is a daily flight between Newark and Belfast on Continental Airlines which was apparently in danger of disappearing. That service will remain, in part thanks to this change,
…maintaining Northern Ireland’s vital economic air link to North America, and Northern Ireland will gain a fresh opportunity to develop other long-haul routes to the rest of the world.
The APD for long-haul flights will be reduced to match the short-haul rates. That’s a difference of £48 for economy class passengers and £96 for folks up front (passengers will be charged £12 or £24).
No word yet on whether Continental will be letting customers save some money thanks to this tax cut or if they’ll be raising their fares to compensate for the cut in the taxes and pocketing the difference for themselves. I’m betting on the latter.
Related Posts:
Posted by Seth on September 3, 2010 under Trip Reports |
It is a nearly universal fact of life: Flight delays suck. And yet, as I sat in the Delta SkyClub last night waiting for my flight to depart, I could not have been happier about the delay of DL 164 from New York City’s JFK airport to Dublin. Originally scheduled to depart at 10:40pm, the flight left nearly two hours late, at 12:34am the next morning. Why should I care? After all, I arrived this morning in Georgetown, Guyana, not Dublin, Ireland. Actually, that’s exactly why I care.
It turns out that Delta doesn’t really think that the couple very late night departures they have out of JFK – namely Bogata and Georgetown – really need lounge access. The Dublin flight is actually the last flight out every night that rates lounge access. On most days the lounge would be closing up right as I got to the airport, three hours prior to my flight. Instead, I got to enjoy the rather nicely renovated facility for a couple hours beyond its normal operating hours, complete with a couple free drinks and all the Biscoffs I could handle.
So, yeah, I was cheering on that flight delay. Didn’t make me too many friends in the lounge as the Dublin passengers came and went three different times when they thought their flight would be boarding, but I made out just fine.
Posted by Seth on January 18, 2010 under frequent flyer, News |
It has been barely six weeks since the new management team stepped in at bmi, the British carrier that Lufthansa took full ownership of several months ago. But the new management team hasn’t wasted any time in making rather drastic changes to the airline, its service offerings and its frequent flyer loyalty program. First there were the cuts to the mid-haul service and the announcement that the Airbus A330s would be returned after the lease expired in early 2010. Then there were the announcements of the Dublin crew base closures and cuts to the service between that city and London. And then they started strictly enforcing some of the previously unenforced rules of their loyalty program, trimming a bit of value out for folks looking to redeem in premium cabin service.
Today’s announcement, however, seems to be a rather major milestone in the efforts to completely reform the carrier into less of a stand-alone brand and into more of a regional feeder carrier. As of January 27, 2010 – only 10 days out – the carrier is cutting business class service on all its domestic UK and Dublin flights, switching to an economy-only product.
They will be introducing “Flexible Economy” fares as part of the cuts. These fares seem to be comparably expensive – less the APD tax differences – and earn the same Diamond Club miles as the business class seats did. They come with complimentary snacks and drinks and seats in the front of the plane. They even include access to lounge facilities in most destinations. In other words, they’re just like the business class seats used to be but without the name “business class” attached.
So roughly the same product with a slightly different name probably shouldn’t raise too many red flags for most folks, right? Well, except for the few very loyal domestic bmi customers you’d be right. The perks being cut affect the few customers who were generally paying more to fly on bmi than on competitors based on the benefits that the program offered in the form of upgrades and free snacks on the flights, two things that used to be a big part of the elite benefits for those flights. They’re gone now and that leaves a lot of customers wondering where the benefits are for the increased spend.
Ultimately this actually seems like it is the right move for the carrier to make. The service wasn’t really anything like an actual business class product so at least they won’t have disappointed customers who thought they were buying one thing and end up get something rather different. And the “out-the-door” price of the flights drops by about £20 thanks to the APD cut. That’s going to work out well for them from a competitive pricing perspective. But it is also yet another in a series of recent changes that have slowly chipped away at the value of the bmi product and loyalty program. It isn’t much of a surprise that this is happening – Lufthansa is in charge now and they actually want to change the carrier into a profitable organization – but it also raises some concerns about what may be just around the corner for folks holding a lot of Diamond Club points. They’re almost certainly going to become Miles & More points sooner or later and the pace of these other changes suggests that the case is likely to be sooner.
Related Posts
Posted by Seth on July 17, 2008 under Uncategorized |
And it isn’t like they can really cut any of their services, as that would basically mean no more seats or no more flights.
In this case Ryanair has chosen to reduce the number of flights they are offering over the winter and also shifting their market to warmer destinations where they expect to see more traffic. The carrier will be grounding 15 planes at London’s Stansted over the winter as well as four planes in Dublin. They will likely be reducing frequencies on Tuesdays, Wednesdays and Saturday mornings – traditional slow travel periods – and also shuttering 7 destinations from early November to mid-December, opening them back up in time for the holiday season. The locations that are closing up are Basel, Budapest, Krakow, Palma, Rzeszow, Salzburg and Valencia. At the same time beach routes will be added to Ibiza, Tenerife and Malaga.
