No End in Sight for Airline Surcharges

Airline surcharges remain a source of mystery to some, frustration to others. A reader recently asked if we saw an end in sight:

“Are these extreme airline surcharges ever going to end? I bought six tickets for $960 each and $414 of that was in taxes and fees. My travel agent said that the surcharges would decrease starting in January 2009. Is this true?”

The short answer is that a few may end soon, but others will not and some will increase. Which way they go depends on what kind of charge they are and who imposes them.

Government Taxes and Fees

Surcharges imposed by various governments aren’t likely to end in January or any other time soon. In fact, if anything, many of them will increase. Basically, just about any government with taxing authority is facing shrinking revenues and increasing expenses, so they’ll be grasping at all available ways to take in more money.

• Airport charges in the U.S. (passenger facility charges, or PFCs) are likely to increase slightly, and airports that don’t presently charge the maximum are likely to increase their take. The totals won’t add up to much more than $20 on a round-trip ticket, but they’ll be around as long as anyone can foresee. Similar charges overseas won’t go away, either.
• Federal charges related to customs and immigration aren’t likely to decrease, nor are similar charges outside the U.S. There’s something about a trillion-dollar deficit that says fee cuts will be extremely scarce. Current levels—$15.40 on departure from the U.S., a total of $32.40 on return arrival—are certainly not going down, and may increase slightly. Ditto fees that include domestic as well as international travel: $2.50 per segment for security and $3.50 per segment tax.
• Around the world, cities, states, local districts, and airports have zeroed in on travelers for a laundry list of airport, rental car, hotel, and restaurant taxes. They’re especially attractive because the people who impose the taxes don’t have to face the folks who pay them in elections. Again, they amount to tens rather than hundreds of dollars, but they certainly add to the total price of travel.

One of the scariest new taxes is the “passenger duty” imposed on departing travelers from the U.K. The already-high fee was recently hiked to the point that economy-class travelers to the U.S. East Coast now pay £45 (about $70; see XE.com for current exchange rates), rising to £60 in 2010; travelers to the West Coast now pay £50, rising to £75 in 2010. Travelers in premium classes (including premium economy) pay double—even those on frequent flyer tickets.

European governments have concluded, in general, that air travel is a big contributor to carbon emissions and many of them actively want to discourage flying. You can expect more of those governments to impose duties similar to those in the U.K., so the outlook will get worse without any chance of getting better later.

Airline Fees and Surcharges

Most U.S. airlines have instituted separate fees for at least some of the services and accommodations that were formerly included “free” in the base fare: phone reservations, online reservations, paper tickets, curbside baggage checking, a second-checked bag, the first-checked bag, priority security lines, preferred coach seating, onboard drinks including even water, onboard meals and snacks, in-flight entertainment, pillows and blankets, use of frequent flyer tickets, ticket exchange, and such. Every time you blink it seems some line has come up with a new one or increased one it already had.

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The airlines call it “unbundling” these services and accommodations. Their rationale is that providing each of them adds to an airline’s costs, so unbundling allows them to keep base fares low and charge passengers for only the services and accommodations they actually want and use. The jury is still out on how travelers will react:

• [[Southwest]] is apparently gaining some real market traction with its clever “no extra fees” promotions, and if Southwest’s program really works, the other lines won’t be able to ignore it.
• On the other hand, other airlines claim that travelers “appreciate” their ability to buy only those extras they really need.

Obviously, the marketplace hasn’t decided yet, but ultimately it will. I can’t begin to predict which way it will go.

Fuel Surcharges

As I’ve noted, fuel surcharges are basically a fiction—an attempt to sugarcoat a fare increase. When oil prices spiked, airlines obviously had to raise fares. Some of them elected to call their increases “fuel surcharges” rather than the fare increases they really were. That may have been good public relations when everyone was talking about high oil prices, but the subsequent fall in fuel prices leaves the public with the expectation that those surcharges will be removed.

My earlier answer shows how unreal some of the fuel surcharges really were. In the example I cited, airline “K” posted a base transatlantic round-trip fare of $562 plus $157 in taxes and surcharges, while airline “L” posted the same trip at $282 plus $444 in taxes and surcharges. All-up totals were $7 different because of different airport charges. But the big difference in quoted fares, obviously, was airline L’s decision to split its real fare into a phony base fare of $282 plus an equally phony fuel surcharge of $280.

Fortunately, the U.S. government doesn’t allow airline L to highlight or post its fare as “$282 plus taxes and fees.” You find out about the split only if you dig into the “fare details” link.

Airline L—and others that use the same pricing scheme—may well announce that they’re reducing or eliminating those phony fuel surcharges come January. That’s probably what your travel agent had in mind. And fares may indeed go down a bit. But if fuel surcharges drop significantly, many base fares will increase. Not in your wildest dreams would base fares remain as low as that unreal $282 figure.

So the bottom line is this: Although some airlines may announce cuts in fuel surcharges, they won’t necessarily result in corresponding cuts in the total cost of tickets. Whether presented honestly or with phony splits, final airfare levels will remain the result of the unending tug-of-war between airlines’ need for higher revenues and their need to attract more customers.