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11 Feb, 2015

Business Travel Coalition Calls For Investigation of Unjustified Airline Fuel Surcharging

February 9, 2015, WASHINGTON, DC (BTC media release) – The Business Travel Coalition (BTC) today urged the U.S. Department of Transportation (DOT) to launch a thorough and in-depth investigation with respect to the airline industry’s continued assessment of often-sizeable fuel surcharges on many itineraries in violation of DOT’s clear “Additional Guidance on Airfare/Air Tour Price Advertisements” of February 21, 2012. (The letter can be found at http://btcnews.co/1AP9l2l.)

“U.S. consumers were sold on the need for fuel surcharges premised by airlines on the sharp rise in jet fuel costs. As oil prices have dropped some 50%, many international carriers have eliminated fuel surcharges or have reduced them to better align with the lower input costs,” said BTC founder Kevin Mitchell. “Japan Airlines, for example, has reduced surcharges by 50% or more and will adjust surcharges bimonthly based on the cost of jet fuel. In contrast, U.S. airlines have told analysts that they do not plan to lower their fuel surcharges because demand is strong. Rather, they plan to use the windfall to offset other costs that have risen or return cash to shareholders,” added Mitchell.

Frustration is mounting among consumers, corporate travel managers and policymakers who sense a basic unfairness, a betrayal of trust when travelers continue to be surcharged for a cost input that they supported and that can add 40% to the price of a ticket, but that has fallen by half. Airlines that did not hedge their future fuel costs are experiencing a windfall; that’s expected to be $5 billion for American Airlines in 2015. For airlines that did hedge and had to pay to unwind those hedges, savings are still substantial – $2 billion for Delta Air Lines. Moreover, airlines are picking up their hedging activities to lock in today’s low prices of fuel for years to come.

Fortunately, whether an airline hedged or not, or how they plan to use the savings, is irrelevant. In its 2012 Guidance, DOT made the point that to avoid being an unfair or deceptive practice, charges imposed on passengers as supposed “fuel surcharges” must bear a reasonable relationship to the per passenger cost of fuel.

That Guidance states: “When a cost component is described as a fuel surcharge, for example, that amount must actually reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier above some baseline calculated based on such factors as the length of the trip, varying costs of fuel, and number of flight segments involved.”

Further, the Guidance states: “…the carrier should be prepared to detail the services and costs per passenger associated with its ‘Passenger service charge international.’” DOT provides an illustration for airlines. “For example, descriptions such as the following would be acceptable: ‘Fare includes a fuel surcharge. On average our passengers paid $xx.xx more for fuel during 2011 in their ticket price than they did in 2000;’ or ‘Fares include a charge for fuel. On average in 2011 our passengers paid $xx.xx for fuel as a part of their ticket price.’ ‘Of course, such assertions must be based on the carrier’s actual paid enplanements and fuel expenditures.’”

In its letter to DOT, the Coalition urged DOT in its investigation to hold the airlines assessing fuel surcharges to account — by requiring them to substantiate on a route-by-route basis that the fuel surcharges do indeed reflect the actual costs of fuel per passenger over some baseline amount.

In short, DOT must act now to protect U.S. consumers from exorbitant fuel surcharges. However, over the mid and long terms, the only structural solution for the imbalance of demand over supply that has allowed U.S. carriers to continue to impose these unjustified surcharges is to assure that all foreign carriers can freely exercise their rights under Open Skies agreements to launch and then expand new services. Therefore, the U.S. government must firmly resist efforts by the Big Three U.S. carriers to undermine Open Skies policy and block the introduction of new foreign carrier flights.