SURPLUS SURCHARGE

I am a frequent flyer living in Asia and I’ve noticed that airlines keep applying a fuel surcharge to the ticket price, even though oil is at its lowest price in decades. I wonder what that means and why it is still in place? Antonia Cimini, Beijing

BUSINESS TRAVELLER ASIA-PACIFIC RESPONDS:

Thank you for your letter Antonia, there are a few things to address on this topic. For starters, each airline creates the pricing structure of tickets individually – therefore charging fuel surcharge is (to an extent) up to each airline’s discretion. Air Asia for example eliminated surcharges in January 2015 in response to low fuel costs, while Qantas and Virgin Australia also scrapped the levy by absorbing it into the basic ticket price.

Another factor is the different legal standpoints of each country. Hong Kong’s civil aviation regulator, for instance, cancelled the fuel levy from February 1 – meaning all flights departing from Hong Kong (regardless of the carrier) do not include a fuel surcharge.

However, many carriers continue to apply a fuel surcharge. One reason is that most carriers secure long-term deals based on current oil prices as a form of risk management to negate the effects of fluctuating rates. Airlines that locked into deals before oil prices dropped subsequently found themselves out of pocket, which a fuel surcharge justifiably helps to offset. However, IATA (International Air Transport Association) recently announced that most of these cases should be “unlocked” by mid-2016, giving this excuse a short shelf life.

At the same time, some carriers dropped “fuel surcharges” but introduced “carrier imposed surcharges” – a deliberately vague and arbitrary term that essentially allows carriers to add extra fees as they see fit. This is common with US carriers, and also the likes of British Airways and Lufthansa.

Having said all of this, according to IATA, ticket prices did reduce overall in 2015 by about 5 per cent, with the same trend expected for 2016 – which is good news.

The real losers, however, are frequent flyers who use their reward points to purchase a ticket, as these points are only applicable to the basic fare – with any additional taxes and surcharges to be paid for in cash.