Airfare Surcharges Stay Despite Oil Price Drop
Friday, October 31, 2008
When oil prices were rising rapidly, many financially-strapped airlines started adding special surcharges to ticket prices to cover the bill. So now that oil prices are falling, are the fees coming off? Not yet.
The lag is drawing complaints from air travelers, consumer watchdogs and a member of Congress. Sen. Robert Menendez (D-N.J.) is sending a letter to U.S. Transportation Secretary Mary E. Peters asking the department to investigate whether the charges "have any basis in reality or if they are being used to mislead travelers, reduce competition and increase fares."
In the letter, Menendez also asks the department to set guidelines so passengers can more easily compare ticket prices.
Jet fuel prices have fallen sharply in recent months. Energy Department data show the spot price of jet fuel is currently trading at $2.11 a gallon, falling from a peak of $4.34 in early July.
So far, few airlines have lifted the surcharge or any other fees for amenities such as sodas, pillows or seats with extra legroom that have been piled on in the last year to offset rising costs.
Fuel surcharges can amount to a hefty chunk of the price of a ticket. A $581 ticket on United Airlines for a flight from Washington to Charlotte comes with a $158 fuel surcharge. Because the charge is subject to a 7.5 percent sales tax, the surcharge grows to nearly $170, amounting to 29 percent of the base ticket cost. Adding to frustrations, some airlines are tucking the charge into the ticket prices, lumping them up under the headings of taxes and other charges.
"You really can't tell what you're paying," said George Hobica, creator of the travel site Airfarewatchdog.com, who calls the surcharges a rip-off. "The average consumer can't see the fuel surcharge. If you are an airline expert, you might be able to see what they are."
Rick Seaney, chief executive of FareCompare.com, said 56 percent of domestic flights have surcharges, most of them at an average cost of $170 for leisure travelers. He said the charges often have little to do with the length of the route or the price of fuel.
"They mostly have to do with how much you can effectively charge for competitive routes," he said.
Exempt from the charges tend to be tickets for routes where Southwest Airlines, which doesn't have fuel surcharges, is a big competitor to other airlines. For example, many Washington-to-Los Angeles and Washington-to-Chicago routes don't carry surcharges because of competing Southwest service from Baltimore-Washington International Marshall Airport.
Fuel surcharges are a relatively new pricing device for U.S. air carriers, analysts say. They are typically enacted when prices rise so quickly that it is difficult to adjust the price of a ticket. The extra fees have provided some breathing room to the strapped industry.
"Ultimately, competition will determine the price of a ticket," said David A. Castelveter, a spokesman for the Air Transport Association, the chief industry lobbying group in Washington. "We as an industry will lose anywhere between $6 billion and $8 billion this year, and we will be in a transition year in 2009. The industry is far from out of the woods."
Mike Miller, an aviation analyst, said surcharges offer airlines a way to cope with rapid swings in the oil markets.
"I don't think we can get around something like that unless Congress is happy with an airline raising prices $200 one day and dropping it by $200 the next day," he said.