
Are Airlines Overcharging for Fuel? - himynamesdave
https://www.himynamesdave.com/2016/02/04/is-my-airline-overcharging-me-for-fuel/
======
jackgavigan
Airlines often enter into forward supply contracts for fuel to hedge against
spikes in fuel costs, so the price of the fuel for a flight today may have
been set a year or more ago ago. However, even if the airline benefits from a
drop in the price of fuel, it doesn't necessarily mean cheaper flights.
Airlines don't operate on a "cost plus" basis - they set their prices based on
the competitive environment. If the price rises, the airline gets to keep the
extra profit[1]; if it drops, the airline's profits suffer[2].

Hopefully, the current low oil price will let the airlines lock in lower fuel
prices for the next couple of years and competitive pressures will start to
result in lower ticket prices next year.[3]

1: [http://www.economist.com/blogs/gulliver/2015/01/fuel-
hedging...](http://www.economist.com/blogs/gulliver/2015/01/fuel-hedging-and-
airlines)

2: [http://www.standard.co.uk/business/ryanair-boss-keeps-
losing...](http://www.standard.co.uk/business/ryanair-boss-keeps-losing-by-
hedging-his-bets-on-oil-price-6916104.html)

3: [http://uk.reuters.com/article/uk-airlines-fuel-hedging-
idUKK...](http://uk.reuters.com/article/uk-airlines-fuel-hedging-
idUKKCN0RM0FD20150922)

~~~
nraynaud
I still think this specific line on the bill should not be based on
competitive environment, but on actual fuel cost, the whole ticket price is
based on the competitive environment. I guess they want that line to look as
big as possible, because it feels like it's not their fault they are charging
us that much (last time on Ari France the whole section was labelled "taxes"
and there was like 30%/70% fuel overcharge in the section).

------
nikcub
Airline fuel costs are (were) largely hedged so the true cost to an airline
isn't reflected in day-to-day fuel prices.

Worse yet - most airlines bet the wrong way on the movement of fuel prices and
locked in expensive hedges that they've made huge losses on now.

Southwest were praised for locking in fuel prices when oil rallied[1] but
since the market turned they have lost _$1.8 billion_ on their positions[2]
Ryan Air locked themselves in for _3 years_ at ~$800-1000 per ton[3] Delta
lost over $2 billion, United over $600 million[4]

Fuel was traditionally 20% of an airlines cost base but peaked up to 35% (see
this[5] super interesting chart). The surcharges are noticed because a lot of
airlines have restructured ticket pricing to the point where the 'base fare'
is only 40-50% of ticket cost. One reason for this is that a lot of reward
programs were restructured so that only the base fare is redeemed while the
surcharges are paid (effectively devaluing frequent flyer miles)

But there is an even simpler reason why you likely weren't being overcharged
for fuel: you were flying Qatar airways. The new batch of airlines from the
gulf states have been making huge losses in an attempt to buy market.

[1]
[http://abcnews.go.com/Travel/story?id=5918252](http://abcnews.go.com/Travel/story?id=5918252)

[2]
[http://www.usatoday.com/story/money/cars/2016/01/25/airlines...](http://www.usatoday.com/story/money/cars/2016/01/25/airlines-
fuel-price-bets-not-always-paying-off/79288102/)

[3] [http://www.reuters.com/article/us-airlines-fuel-hedging-
idUS...](http://www.reuters.com/article/us-airlines-fuel-hedging-
idUSKCN0RM0FN20150922)

[4]
[http://www.bloomberg.com/news/articles/2015-11-25/airlines-b...](http://www.bloomberg.com/news/articles/2015-11-25/airlines-
bet-on-long-oil-slump-after-millions-lost-to-hedging)

[5] [http://imgur.com/z874RuC.png](http://imgur.com/z874RuC.png)

~~~
protomyth
Delta actually bought a refinery.
[https://en.wikipedia.org/wiki/Trainer_Refinery](https://en.wikipedia.org/wiki/Trainer_Refinery)

------
yason
I've never given much thought to what the airlines might claim to be the
breakdown of the sum I pay for the flight because the fixed costs don't really
define the lump sum price anyway.

Competition is fierce enough to drive down those costs over which airlines
have any control at all. I think that for any route worth its salt the prices
are close enough to what's actually sustainable for the airline and not
necessarily _that much_ higher. This is very different for more remote and
less-used routes where one or two company might enjoy a geographical monopoly.

The thing is that the airlines make sure there's always something you can buy
from at a crazy prize. The classic example might be the first class ticket for
the next departing flight. Even each first class and business seat allows the
airline to give a small discount for all economy seats because people are
willing to pay a different price for things they value differently. Further,
because seats are sold one by one, even economy seats can cost double or half
depending on when and how you're buying them.

Personally, I book my flights somewhat in advance, picking a combination of
flight times and prices that I find tolerable myself. The limits are all
subjective and can change. But I don't care if I paid five
dollars/euros/pounds more or less because of "passenger civil aviation
security service fee" because the major factor for how much I end up paying is
how the market works for airline tickets. If the fee was 2 pounds or 20
pounds, I might still be paying the same price. Or I could be paying a hundred
pounds more (or less) for the ticket even if the fees would be a few dozens
pounds less (or more).

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happyraul
YQ has nothing to do with the cost or amount of fuel for a flight. It is also
possible to partially or entirely eliminate the charges using a technique
called fuel dumping: [http://www.economist.com/blogs/gulliver/2013/11/fuel-
dumping](http://www.economist.com/blogs/gulliver/2013/11/fuel-dumping)

------
kchoudhu
British Airways is _notorious_ for having an unfavorably skewed ticket price
to YQ surcharge ratio.

Part of the reason they do this is because it allows them to book revenue for
"free" award tickets: since your miles only cover the ticket component of the
package and none of the fuel surchages, they can wring money from passengers
who would otherwise be dead weight on the balance sheet.

I recently booked an award ticket on BA metal (I know, mistake -- but it was
an emergency) that cost me something like $500 in fuel surcharges and assorted
taxes. As it turns out, in airline speak free doesn't actually mean free.

~~~
briandear
Some airlines actually apply those 'free' ticket taxes as if the ticket were a
full, unrestricted ticket -- which award tickets are not.

I've had good luck with United though. A miles ticket from Europe to the US
generally costs me between $90-$100 in fees. Not too bad considering the same
one way might cost $1000-$2000.

British Airways seems to operate like British airports: a constant attempt to
scrape every last cent (and goodwill) from passengers.

~~~
kchoudhu
For nearly a decade, I lived in New York and managed to avoid BA for all my
travel needs.

I recently moved to Doha and am working remotely for my company, with
occasional trips back to the motherships in NY and London. Unless I fly ME3,
BA is all that works for me.

Alas.

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chippy
I worked for a British based airline for a couple of years (before the fuel
surcharges were introduced). Regarding tickets, economy (coach) tickets are
not where airlines make their money, so we probably shouldn't look at the
prices we pay for these tickets as data points relating to costs (fuel). It's
not comparable to train or bus travel.

They make any profits with business class and first class tickets. These are
the seat prices which may reflect the costs to operate. Economy seats are
there to fill up the plane. They can run the flight and still make a profit if
all the business class and first class seats are taken and no economy seats
are there. This is why the adverts you see on TV are never about the economy
class, but all about the business / first class / luxury class. Airlines only
compete with each other on these luxury seats, they don't compete with economy
seats.

~~~
jlg23
I've taken quite a lot of flights where there either was no business or first
class or, if there was a business class, it was only marginally more expensive
than cattle^weconomy class. Traveling through South America for 14 months now,
the average economy seat is about 80USD per hour of flight if bought directly
at the airport. How do they make a profit if your calculation is correct? (And
I am not talking about the probably heavily subsidized regional airlines that
get you from one jungle airfield to another and are the only means of getting
to lots of places.)

~~~
nikcub
> How do they make a profit if your calculation is correct?

They don't.

Or freight.

~~~
seanmcdirmid
Southwest makes money and they lack business class. Domestic routes rarely
make money on biz class, and they are still profitable. Only international
routes have significant biz class markups (believe me, I would pay a lot to
sleep on an 11 hour flight).

Economy seats are probably more profitable than the airlines want to let on
given that the experience is so miserable.

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aeijdenberg
YQ surcharges are just another element an airline can choose to muck with to
bump up or down the ticket price. As an end user I wouldn't bother reading
anything into it - the total price is the total price regardless of how the
airline choose to break it out.

The interesting part from the carrier point of view relates to how an airline
prorates out the total amount collected in codeshare or interline agreements,
and whether corporate discounted fares offered apply to the YQ portion or not
(hint they usually don't) and whether all governments have caught up in taxing
these in the same manner as a regular fares. I would think of it as a
construct for creative accounting more than anything else.

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nowprovision
I guess that part is inflated as you suggest, but you flew Qatar economy from
LHR to BKK for I guess under 400gbp all-in. Even if the real cost of fuel was
close to $100 there still not a lot of gold in the deal, the other mandatory
fees essentially mean that Qatar have less than $100 per flight leg to cover
their costs. Given Qatar is one of the best on this route I'd say you still
got a bargain. BTW how was the dreamliner in comparison to the a380 iirc they
were using 777s last time.

~~~
drewrm
Qatar's 787 was pretty uncomfortable for me on a 6 hour flight. 9 across
seating and a very tight seat pitch (31 inch) is not ideal for that long a
flight. The QR 777 I took had slightly wider seats (still 9 across) and a
little more leg room but much more noise in the cabin compared with a 787 or
A380.

I've only flown Emirates A380, but for me it beats both easily in terms of
comfort.

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dibbsonline
Depends what they hedged at.

~~~
briandear
Exactly this. Fuel costs for airlines aren't reflected in the oil price today,
but of the oil price covered by their hedging contracts. Hedging, as you
obviously know is a tactic that has the goal of making fuel prices 'flat.'
Gary Kelly architected Southwest's fuel hedging strategy and pioneered the
practice in airlines; it was the reason Southwest was profitable during the
$120 per barrel era. You can bet airlines are loading up now on futures
contracts.

My point is that fuel surcharges and costs today don't reflect the price paid
at the pump.

~~~
kchoudhu
I wonder how WN is doing now that oil is at $20 a barrel...

Hedges cut both ways.

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tyingq
I'm more of the mind that shipping companies (UPS, Fedex) are overcharging.
Each raises their rates approximately 5% every year, significantly higher than
the rate of inflation. And, each has a fuel surcharge tied to current pricing.

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atemerev
I am regularly flying through Europe for almost nothing, $30-$40. It's way
cheaper than train tickets now. London to NYC and back for $300 is not unheard
of.

I pity the airlines and wonder where do they make money from.

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smoyer
I've been a business traveler for over 20 years and the average price I've
paid for a coast to coast flight in the last 5 years is less than the previous
15. The perks have gone down but think about how cheap jet fuel was 20 years
ago. I suspect the competition in the airline business has been less stable
with the discount flyers that have started up. There has certainly been more
consolidation.

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raverbashing
I think there's something wrong with the math

Efficiency numbers quoted are per pax for full planes (I guess considering the
max legal amount of seats)

Also, the Qatar 787-8 has 254 seats, 232 in Economy

~~~
himynamesdave
There was some error in my maths on the first pass. Fuel Surcharge quoted is
for a return journey. Originally I calculated Fuel Surcharge for round-trip
against one-way fuel costs.

Analysis does assume flight are operating at 100% capacity, which is likely to
be improbable.

Airlines can mix seating depending on 787-8. I got the figure 232 here:
[https://en.wikipedia.org/wiki/Fuel_economy_in_aircraft](https://en.wikipedia.org/wiki/Fuel_economy_in_aircraft)

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victorology
Is this taking account full occupancy? If the flight is only 70% booked,
wouldn't the fuel surcharge per passenger by higher?

~~~
johansch
The passenger load factor has generally been going up since 2008. See e.g.
[https://en.wikipedia.org/wiki/British_Airways#Business_trend...](https://en.wikipedia.org/wiki/British_Airways#Business_trends)

~~~
notahacker
Still a valid point when the gallons per passenger calculation is likely based
on a full load, and his flight was more likely to have had an 80% load than a
full load.

~~~
himynamesdave
Analysis does assume flight are operating at 100% capacity, which is likely to
be improbable. But here's a thought; would airlines charge higher fuel
surcharges p/pax for routes with lower ave. pax:capacity?

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meritt
Airlines buy fuel contracts far in advance. You're paying 2015 prices
throughout 2016.

Wait til 2017 for the real savings.

