Are Airlines Overcharging for Fuel?

https://www.himynamesdave.com/2016/02/04/is-my-airline-overcharging-me-for-fuel/

by himynamesdave • 10 years ago

41 33 10 years ago

Is this taking account full occupancy? If the flight is only 70% booked, wouldn't the fuel surcharge per passenger by higher?

johansch• 10 years ago

The passenger load factor has generally been going up since 2008. See e.g. https://en.wikipedia.org/wiki/British_Airways#Business_trend...

notahacker• 10 years ago

Still a valid point when the gallons per passenger calculation is likely based on a full load, and his flight was more likely to have had an 80% load than a full load.

dibbsonline• 10 years ago

Depends what they hedged at.

briandear2• 10 years ago

Exactly this. Fuel costs for airlines aren't reflected in the oil price today, but of the oil price covered by their hedging contracts. Hedging, as you obviously know is a tactic that has the goal of making fuel prices 'flat.' Gary Kelly architected Southwest's fuel hedging strategy and pioneered the practice in airlines; it was the reason Southwest was profitable during the $120 per barrel era. You can bet airlines are loading up now on futures contracts.

My point is that fuel surcharges and costs today don't reflect the price paid at the pump.

kchoudhu3• 10 years ago

I wonder how WN is doing now that oil is at $20 a barrel...

Hedges cut both ways.

aeijdenberg• 10 years ago

YQ surcharges are just another element an airline can choose to muck with to bump up or down the ticket price. As an end user I wouldn't bother reading anything into it - the total price is the total price regardless of how the airline choose to break it out.

The interesting part from the carrier point of view relates to how an airline prorates out the total amount collected in codeshare or interline agreements, and whether corporate discounted fares offered apply to the YQ portion or not (hint they usually don't) and whether all governments have caught up in taxing these in the same manner as a regular fares. I would think of it as a construct for creative accounting more than anything else.

kchoudhu3• 10 years ago

British Airways is notorious for having an unfavorably skewed ticket price to YQ surcharge ratio.

Part of the reason they do this is because it allows them to book revenue for "free" award tickets: since your miles only cover the ticket component of the package and none of the fuel surchages, they can wring money from passengers who would otherwise be dead weight on the balance sheet.

I recently booked an award ticket on BA metal (I know, mistake -- but it was an emergency) that cost me something like $500 in fuel surcharges and assorted taxes. As it turns out, in airline speak free doesn't actually mean free.

briandear2• 10 years ago

Some airlines actually apply those 'free' ticket taxes as if the ticket were a full, unrestricted ticket -- which award tickets are not.

I've had good luck with United though. A miles ticket from Europe to the US generally costs me between $90-$100 in fees. Not too bad considering the same one way might cost $1000-$2000.

British Airways seems to operate like British airports: a constant attempt to scrape every last cent (and goodwill) from passengers.

kchoudhu3• 10 years ago

For nearly a decade, I lived in New York and managed to avoid BA for all my travel needs.

I recently moved to Doha and am working remotely for my company, with occasional trips back to the motherships in NY and London. Unless I fly ME3, BA is all that works for me.

Alas.

yason• 10 years ago

I've never given much thought to what the airlines might claim to be the breakdown of the sum I pay for the flight because the fixed costs don't really define the lump sum price anyway.

Competition is fierce enough to drive down those costs over which airlines have any control at all. I think that for any route worth its salt the prices are close enough to what's actually sustainable for the airline and not necessarily that much higher. This is very different for more remote and less-used routes where one or two company might enjoy a geographical monopoly.

The thing is that the airlines make sure there's always something you can buy from at a crazy prize. The classic example might be the first class ticket for the next departing flight. Even each first class and business seat allows the airline to give a small discount for all economy seats because people are willing to pay a different price for things they value differently. Further, because seats are sold one by one, even economy seats can cost double or half depending on when and how you're buying them.

Personally, I book my flights somewhat in advance, picking a combination of flight times and prices that I find tolerable myself. The limits are all subjective and can change. But I don't care if I paid five dollars/euros/pounds more or less because of "passenger civil aviation security service fee" because the major factor for how much I end up paying is how the market works for airline tickets. If the fee was 2 pounds or 20 pounds, I might still be paying the same price. Or I could be paying a hundred pounds more (or less) for the ticket even if the fees would be a few dozens pounds less (or more).

meritt• 10 years ago

Airlines buy fuel contracts far in advance. You're paying 2015 prices throughout 2016.

Wait til 2017 for the real savings.

jackgavigan• 10 years ago

Airlines often enter into forward supply contracts for fuel to hedge against spikes in fuel costs, so the price of the fuel for a flight today may have been set a year or more ago ago. However, even if the airline benefits from a drop in the price of fuel, it doesn't necessarily mean cheaper flights. Airlines don't operate on a "cost plus" basis - they set their prices based on the competitive environment. If the price rises, the airline gets to keep the extra profit[1]; if it drops, the airline's profits suffer[2].

Hopefully, the current low oil price will let the airlines lock in lower fuel prices for the next couple of years and competitive pressures will start to result in lower ticket prices next year.[3]

1: http://www.economist.com/blogs/gulliver/2015/01/fuel-hedging...

2: http://www.standard.co.uk/business/ryanair-boss-keeps-losing...

3: http://uk.reuters.com/article/uk-airlines-fuel-hedging-idUKK...

nraynaud• 10 years ago

I still think this specific line on the bill should not be based on competitive environment, but on actual fuel cost, the whole ticket price is based on the competitive environment. I guess they want that line to look as big as possible, because it feels like it's not their fault they are charging us that much (last time on Ari France the whole section was labelled "taxes" and there was like 30%/70% fuel overcharge in the section).

bogomipz2• 10 years ago

What do you mean "cost plus"? Could you elaborate? I'm not familiar with what that means as a business model. Thanks.

nowprovision• 10 years ago

I guess that part is inflated as you suggest, but you flew Qatar economy from LHR to BKK for I guess under 400gbp all-in. Even if the real cost of fuel was close to $100 there still not a lot of gold in the deal, the other mandatory fees essentially mean that Qatar have less than $100 per flight leg to cover their costs. Given Qatar is one of the best on this route I'd say you still got a bargain. BTW how was the dreamliner in comparison to the a380 iirc they were using 777s last time.

drewrm• 10 years ago

Qatar's 787 was pretty uncomfortable for me on a 6 hour flight. 9 across seating and a very tight seat pitch (31 inch) is not ideal for that long a flight. The QR 777 I took had slightly wider seats (still 9 across) and a little more leg room but much more noise in the cabin compared with a 787 or A380.

I've only flown Emirates A380, but for me it beats both easily in terms of comfort.

happyraul• 10 years ago

YQ has nothing to do with the cost or amount of fuel for a flight. It is also possible to partially or entirely eliminate the charges using a technique called fuel dumping: http://www.economist.com/blogs/gulliver/2013/11/fuel-dumping

atemerev• 10 years ago

I am regularly flying through Europe for almost nothing, $30-$40. It's way cheaper than train tickets now. London to NYC and back for $300 is not unheard of.

I pity the airlines and wonder where do they make money from.

raverbashing• 10 years ago

I think there's something wrong with the math

Efficiency numbers quoted are per pax for full planes (I guess considering the max legal amount of seats)

Also, the Qatar 787-8 has 254 seats, 232 in Economy

himynamesdave2• 10 years ago

There was some error in my maths on the first pass. Fuel Surcharge quoted is for a return journey. Originally I calculated Fuel Surcharge for round-trip against one-way fuel costs.

Analysis does assume flight are operating at 100% capacity, which is likely to be improbable.

Airlines can mix seating depending on 787-8. I got the figure 232 here: https://en.wikipedia.org/wiki/Fuel_economy_in_aircraft

chippy• 10 years ago

I worked for a British based airline for a couple of years (before the fuel surcharges were introduced). Regarding tickets, economy (coach) tickets are not where airlines make their money, so we probably shouldn't look at the prices we pay for these tickets as data points relating to costs (fuel). It's not comparable to train or bus travel.

They make any profits with business class and first class tickets. These are the seat prices which may reflect the costs to operate. Economy seats are there to fill up the plane. They can run the flight and still make a profit if all the business class and first class seats are taken and no economy seats are there. This is why the adverts you see on TV are never about the economy class, but all about the business / first class / luxury class. Airlines only compete with each other on these luxury seats, they don't compete with economy seats.

jlg23• 10 years ago

I've taken quite a lot of flights where there either was no business or first class or, if there was a business class, it was only marginally more expensive than cattle^weconomy class. Traveling through South America for 14 months now, the average economy seat is about 80USD per hour of flight if bought directly at the airport. How do they make a profit if your calculation is correct? (And I am not talking about the probably heavily subsidized regional airlines that get you from one jungle airfield to another and are the only means of getting to lots of places.)

nikcub2• 10 years ago

How do they make a profit if your calculation is correct?

They don't.

Or freight.

SixSigma• 10 years ago

Explain this then :

Emirates launches new two-class Airbus A380 after scrapping first class in favour of expanding economy and creating the largest ever passenger plane by cutting out first class and reducing the number of business class flatbed seats. It now boasts 557 economy seats and 58 business

http://www.telegraph.co.uk/travel/travelnews/11991881/Emirat...

bogomipz2• 10 years ago

I find this hard to believe, why then do airlines have such punitive policies for things like changing travel dates and extra fees for checking luggage? Airlines "nickel and dime" travelers now for every minor convenience that was previously included in a fare- snack foods, in-flight entertainment, emergency aisle seats etc. If nothing really matters besides business class fares then please explain the existence of these insulting and petty practices.

Also can you site evidence besides anecdotally that you worked for an airline?

nikcub2• 10 years ago

Airline fuel costs are (were) largely hedged so the true cost to an airline isn't reflected in day-to-day fuel prices.

Worse yet - most airlines bet the wrong way on the movement of fuel prices and locked in expensive hedges that they've made huge losses on now.

Southwest were praised for locking in fuel prices when oil rallied[1] but since the market turned they have lost $1.8 billion on their positions[2] Ryan Air locked themselves in for 3 years at ~$800-1000 per ton[3] Delta lost over $2 billion, United over $600 million[4]

Fuel was traditionally 20% of an airlines cost base but peaked up to 35% (see this[5] super interesting chart). The surcharges are noticed because a lot of airlines have restructured ticket pricing to the point where the 'base fare' is only 40-50% of ticket cost. One reason for this is that a lot of reward programs were restructured so that only the base fare is redeemed while the surcharges are paid (effectively devaluing frequent flyer miles)

But there is an even simpler reason why you likely weren't being overcharged for fuel: you were flying Qatar airways. The new batch of airlines from the gulf states have been making huge losses in an attempt to buy market.

[1] http://abcnews.go.com/Travel/story?id=5918252

[2] http://www.usatoday.com/story/money/cars/2016/01/25/airlines...

[3] http://www.reuters.com/article/us-airlines-fuel-hedging-idUS...

[4] http://www.bloomberg.com/news/articles/2015-11-25/airlines-b...

[5] http://imgur.com/z874RuC.png

protomyth• 10 years ago

Delta actually bought a refinery. https://en.wikipedia.org/wiki/Trainer_Refinery

smoyer• 10 years ago

I've been a business traveler for over 20 years and the average price I've paid for a coast to coast flight in the last 5 years is less than the previous 15. The perks have gone down but think about how cheap jet fuel was 20 years ago. I suspect the competition in the airline business has been less stable with the discount flyers that have started up. There has certainly been more consolidation.

tyingq• 10 years ago

I'm more of the mind that shipping companies (UPS, Fedex) are overcharging. Each raises their rates approximately 5% every year, significantly higher than the rate of inflation. And, each has a fuel surcharge tied to current pricing.

Are Airlines Overcharging for Fuel?

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