Move talks with Bob Brindley, Advito’s vice president and principal, about the shift in air fuel surcharges.
Virgin Australia, Quantas, British Airways and Japan Airlines all have recently announced plans to decrease or eliminate fuel surcharges, and some business travel industry groups have called for regulators to require more carriers to follow suit amid low oil prices.
Advice for travel managers
“This signals a shift away from fuel surcharges, but it won’t be a fast process, and it won’t necessarily mean lower prices for travelers,” Brindley said. “The slow pace is happening because airlines have realized three benefits from fuel surcharges. They offset the cost of fuel and in some cases even exceed the cost of fuel, which means they contribute to airline profits. They aren’t eligible for corporate discounts. And they aren’t taxed in the same way as base fares. So, even though customers are pushing airlines to remove the surcharges as oil prices drop, carriers have dragged their feet.
“Here’s the other reality: The recent years of high oil prices coincided with an extraordinary period of business discipline for airlines. Airlines ramped up efficiency, discovered the profit-making power of ancillary fees and squeezed capacity. As a result, most are in good financial shape and in control of supply as economic recovery drives increases demand,” he noted. “So, even if airlines eliminate fuel surcharges, overall ticket prices could drop very little—or not at all. In fact, prices could even increase if cheaper oil stimulates the broader economy and boosts demand for air travel, and airlines maintain tight control over capacity.
“The two factors that will encourage airlines to adjust fuel surcharges and pricing under these circumstances are the prospect of increased regulatory scrutiny and customer pressure,” Brindley said. “Advito’s advice to travel managers is to be vocal. Ask for airline partners to provide transparency in fuel-related fees and pricing. In addition, corporate travel programs should look for pockets of opportunity in competitive airline markets where the company has a large volume of business. Airlines have been hesitant to increase corporate discounts, but if a travel procurement manager armed with the right industry insights and the right program data in the right markets builds the business case for a better offer, airlines may comply. That’s the kind of proposal we’re crafting for clients as they consider how to cut their air costs.”