fuel surcharge

[littlejet]

The fuel dropped more than half but nobody seem to bother dropping the surcharge...perfect

[niknak]

I may be mistaken, but I thought that in the UK both B.A and Virgin had done so, possibly others as well.

[ChrisVJ]

In Canada WestJet dropped it but then dropped the ball by repaying it to a couple of customers who went public, then they were slow to repay other customers so their generosity turned into negative PR instead of positive.

[creamhain]

:)I received a Westjet reimbursment in the form of coupon, however my wife flew to Paris and I believe Air Canada charged $330 for the fuel surcharge.:* The only reason they don't charge in Canada is Westjet kept them honest.

[CornishFlyer]

Yeah Virgin and BA have reduced the surcharge. The thing is, in this industry, to try and offset the cost of increasing fuel bills, fuel gets "hedged" whereby it is bought in advance for the future. This means that even if the price of fuel goes down, the fuel that has been hedged in the past at the higher price still hasn't been used and so the price of the surcharge won't be able to be reduced yet. Not really much the airlines can do. Just have to wait unfortunately

[vanHorck]

not entirely true imho.

Hedged fuel means an option to buy fuel at a given price. If this option is not excercised you loose a downpayment, but in this case where a barrel has dropped by 50%, one could buy at that new rate and only loose the downpayment

If the downpayment is 10% at a barrel rate of 140 dollars and the current rate is 70, the max cost would be 94.

I think the surchae is in part used to cover the cost of the rising fuel when no surcharge was charged yet as well as the downturn in ticket sales

[CornishFlyer]

Indeed there will be a lot more involved to the hedging than what I said, I was merely trying to highlight the fact that it's not quite as simple as when the price of oil goes down, there should be a reduction in fuel surcharge immediately too ;)

[ETOPS]

BMI (Britisches Mittleres Land) have dropped their fuel charge altogether.
Bmi has announced that it is removing all fuel surcharges on its flights within the UK and Europe.

The airline, which is the second largest carrier at Heathrow Airport, said that the initiative recognises the current economic situation and the need to provide affordable air travel to leisure and business customers.

Peter Spencer, bmi's managing director, said: "Bmi has always been a market leader in UK and Europe and is committed to providing the best value flights backed up by our renowned friendly service.

"Our extensive UK domestic and European mainline network links 17 cities and the abolition of fuel surcharges on these short-haul flights [is] designed to help encourage more business and leisure travel."

Across its full mainline and regional network, bmi operates some 1,800 flights per week to destinations including Amsterdam, Chicago, Venice and Zurich.

Its move to cut surcharges follows similar initiatives by British Airways and Virgin Atlantic, which reduced fuel charges on their short- and long-haul flights.

[James 1077]

Hedged fuel means an option to buy fuel at a given price. If this option is not excercised you loose a downpayment, but in this case where a barrel has dropped by 50%, one could buy at that new rate and only loose the downpayment

If the downpayment is 10% at a barrel rate of 140 dollars and the current rate is 70, the max cost would be 94.

This is only the case with certain options; if you hedge with forwards then you have an obligation to buy at that price.

Then you also have other options which give you a cap and a floor on what you pay. So if the price goes above your cap then you don't pay anymore than that but if it goes under your floor then the minimum you pay is your floor.

The reason for hedging like this is that it is much cheaper to do than a straight capped option (with no floor) and also provides the certainty that companies are looking for (remembering that airlines aren't invested in to speculate on fuel prices as that isn't what their shareholders want them to do - so the hedges are there for payment certainty and planning purposes).

[egbt]

Then you also have other options which give you a cap and a floor on what you pay. So if the price goes above your cap then you don't pay anymore than that but if it goes under your floor then the minimum you pay is your floor.

Thread drift on/

IIRC known as a butterfly spread, implemented with multiple options.

In the real world, metals and petroleum based products (don’t know about aviation fuel) are not traded on options which are only really used by gamblers (sorry, respected financial institutions), manufacturing companies who actually use the stuff buy forward on the LME or equivalent.

/Thread drift off

[WHBM]

Fuel surcharges are a highly desirable part of pricing structure to the major carriers.

Most of these have substantial discount deals with their major customers, the large international traders, etc. These deals can be complex but at their centre is a substantial percentage discount on the fare, in some cases up to 50%.

Fuel surcharges, just like airport "tax", is outside this deal, and is charged at the full amount to these large accounts. So it is in the airline's commercial interest to minimise the fare proportion of the overall price, and maximise the surcharges. This is how carriers maintain surprisingly low base fares, and are even then prepared to discount them to major customers, while maintaining their revenue by these other means.

Frequent flyer miles redemptions come free with your 50,000 miles, and even then are hedged with restrictions, but they only give as "free" the base fare. Fuel surcharges and "taxes" are levied in full on top. So the same applies here.