International governments are increasingly putting pressure on airlines to scrap controversial fuel surcharges as the price of oil is now at an all-time low and trading around US$30 a barrel. The latest government to take radical action is Hong Kong.
The Hong Kong Civil Aviation Department (CAD) announced last week that airlines will no longer be allowed to levy fuel surcharges for any flights originating from Hong Kong until further notice.
The CAD explained in a statement that since the aviation fuel prices in the past months have greatly reduced and stabilised to a reasonable level, the levying of passenger fuel surcharges is no longer warranted.
The recent announcement from the Hong Kong CAD shows it is not impossible for airlines to scrap the surcharge. On its Hong Kong route, SAA has scrapped the fuel levy under pressure from the Chinese government for all flights from February 1. Previously, passengers had to fork out an average of R500 for ‘carrier-imposed’ surcharges on the route.
Airlines introduced the fuel surcharge to protect themselves from the rising cost of oil when it was trading at over $120 per barrel. Today however, oil is at a 12-year low. So, why are airlines still making the consumer pay ‘extra’ for fuel?
In South Africa, airlines often hide behind the excuse of the rand rate of exchange. They argue that any reduction in the price of oil is offset by the fact that operating costs are in dollars. Airlines have even changed the name of the fuel surcharge to ‘carrier-imposed’ surcharges.
Although it is the airlines’ absolute right to run a commercially viable and profitable business, the argument by travel trade organisations such as the Association of Southern African Travel Agents (ASATA) is that this fuel ‘surcharge’ should be incorporated and presented in the actual airfare, not as a separate charge.
Says ASATA CEO Otto de Vries: “ASATA’s view is that it is no longer acceptable for airlines to levy a fuel surcharge given the many changes to consumer laws, inclusive pricing and oil prices’ fall. Fuel is a cost of doing business for airlines and should be presented in the base fare so that South African consumers can see up front and in a transparent manner what they are paying towards airfare.
“Consumers are also often not aware that the fuel surcharge or carrier-imposed surcharges are not a government-levied tax and would perhaps be less content to pay these if they knew that it was an attempt by the airline to recover what essentially is a direct cost to them doing business. They do not specify a surcharge for a pilot and crew, so why should fuel be a separate surcharge?”
For frequent flyers, there is a further implication of declaring a fuel surcharge. Travellers can only use their frequent flyer points to pay for the base fare, not for any levies or government taxes. Also corporate discounts are only calculated on the base fare. So, by categorising a large chunk of the fare as a surcharge, airlines can protect their income from discounts and loyalty scheme claims.
ASATA launched a comprehensive Fuel Surcharge Study last year, which was tabled at the World Travel Agents Association Alliance’s and adopted as a global study to be used to lobby airlines to incorporate the fuel surcharge component in their base fares.