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Saturday, February 18, 2006

Fuel Surcharges - not all bad?

Since my previous post on fuel surcharges I've come across an alternative viewpoint that they are not all bad.

Not all bad?

The explanation used was that fuel surcharges are refundable, whereas the base fare is not on non-refundable tickets. Unlike most US-based airlines, many cheap tickets on other airlines are non-refundable. So a $100 base fare plus $50 fuel surcharge may be better than a $150 base fare plus no fuel surcharge, if you need to refund.

Does it stack up?

This sounds plausible, but I am not convinced. If there is a high chance of needing to refund, or change flights, you generally just pay a bit more for the more flexible and refundable fares. Granted you could save some money depending on the fare difference between refundable and non-refundable if you often need to cancel.

But most times you (hopefully!) dont need to refund, in which case there is no difference on a paid ticket between $100 base fare plus $50 fuel surchare or $150 base fare.

However, most frequent flyer programs (again apart from US-based ones) charge fuel surcharges on award tickets also. So the existence of a fuel surcharge effectively devalues the miles in circulation. This is because the frequent flyer programs did not reduce the number of miles needed for an award when the airlines introduced fuel surcharges or subsequently raised them (several times so far).

The way fuel surcharges have been generally structured - an amount for domestic/short haul and a much higher amount for long haul, and on a per flight basis - means it doesn't matter if you use miles for short trips or long trips. Your miles are worth less in both cases.

My conclusion: there may be some circumstances where fuel surcharges are beneficial to the consumer, but I think there are far more circumstances where they are not.



What do you think?

1 comment:

Better Living Through Miles said...

Just came across this post. I agree that the net benefit to the consumer is negative. I especially think you make an important point re: the potential devaluation of miles in this scenario.

I posted on a related matter recently, fwiw:
http://upgradetravel.blogspot.com/2006/02/us-regulators-to-weaken-airfare.html