Fuel for Thought: Maybe Some Real Transparency is in Order

The price of a barrel of oil has dropped significantly, and with that drop the airline fuel surcharge fee has once again come under fire. In fact, the Business Travel Coalition has suggested that such charges are in violation of the DOT’s 2012 notice, “Additional Guidance on Airfare/Air Tour Price Advertisements,” which states, in part, that identified fees “must accurately reflect the actual cost of the item for which the charge is assessed” (you can read the entire notice here http://1.usa.gov/1Cyr3m2). Hence BTC has argued, “the continued, widespread imposition of these substantial, add-on fuel surcharges in the face of plummeting jet fuel prices cannot be justified.”

It’s hard to argue with that logic, so now what?

Well, before I get to my recommendation, let’s take a quick look back to see how we got where we are today.

Fuel surcharges were introduced in 2004 as a way for airlines to deal with rapidly escalating and highly volatile oil prices. They seemed justified at the time – and over the years I could relate, especially when filled up my gas tank (and I’m not talking some big old SUV, just a little four cylinder Honda). 

Airlines also pushed to have all the taxes and fees imposed by the government listed on the ticket in a move designed to increase transparency and allow consumers to see everything that went into the price of a ticket. This, too, seemed reasonable. Why shouldn’t we all know what we are being charged for homeland (national) security, environmental protection, agriculture inspection, infrastructure enhancement, airport and airway operations and maintenance, and agency financing when we take the kids to see Mickey Mouse.

Ten years on, I fill up my car and have enough change from a $50 to take the kids for pizza.  Granted we’re talking a plain cheese pie and no drinks, but that’s a lot better than a year ago when I was paying close to $60 to fill up. So how come the fuel surcharges haven’t similarly shrunk?

Some airlines have argued that while oil prices are down, they are still volatile, and as such, surcharges are still justified. While fuel continues to be a significant cost to an airline, even the fastest-on-their-feet airline execs would be hard pressed to defend fuel surcharges at their current levels – when the price of a barrel of oil is down 60%.  

So, now what? (I know I said that already but now I really mean it.)

If airlines are serious about transparency, then I would suggest they drop the fuel surcharges altogether. Get over it and just bundle the cost of fuel back into the base fare of the ticket because when we get down to it, we all know this isn't about fuel – it's about higher fares that airlines don't want to lower. And who can blame them? I certainly do not. Demand for their product is high and there’s no reason to continue to price based, in part, on cost structure.  They need not apologize, be scrutinized, or worse yet, be regulated with respect to how they price their product. If you don’t want to pay for boarding early, a bigger seat, or a scotch and soda (ok, the soda is free, but if you didn’t pay for the bigger seat, you’ll need the scotch), you don’t have to. If you think the price of an airline ticket is too high, figure out another way to get wherever you’re going and deal with it.

I would argue that dropping the fuel surcharge would fix a lot of problems. Travel agents don’t like the charges because it complicates their lives, and because their incentives are based on the base fare only (taxes and surcharges are removed from consideration). Customers don’t like them because they think it’s deceptive. Politicians and advocacy groups use it as a way to embellish their pro-consumer chops, so you won’t have them breathing down your neck at every chance.

Who am I missing here? Investors? All you need to do is increase the base fare by whatever amount keeps you whole, and they’d be fine with it too.  

So what are you waiting for? Go ahead, do it! Drop the fuel surcharge and be done with this once and for all! It’s time for some real transparency!