View Full Version : Oil Price - Who is still surcharging ?

23rd Jan 2009, 12:27
With Oil at $40 a barrel, I would be interested to know which airlines are still ripping passengers off with a fuel surcharge ?

Any views ?

23rd Jan 2009, 12:34
Few airlines bought the fuel they use today, today; hence the surcharge reflects the price they paid when they bought it (some time ago.) That's not to say the surcharge will decrease to reflect their costs, just a reason why it hasn't come down (yet, if ever.)

23rd Jan 2009, 12:41
I know a VERY large airline that hedges its fuel requirements in the following manner. Year 1 (80%), Year 2 (60%), Year 3 (40%), Year 4 (20%). This airline still has a fuel surcharge, it can show these fuel surcharges do not cover the extra costs it is paying for its fuel in any way. The write downs over the third quarter are running into the hundreds of millions of dollars. Just read the numbers that United, American and Southwest Airlines have put out in the last week. Almost half of their losses can be traced to their fuel hedging policies. This is the tip of the iceberg as European carriers will be putting out its third quarter numbers in the coming weeks. A fuel surcharge is not fair, but you can choose not to pay for it, and get your money back.

23rd Jan 2009, 12:43
Not so long ago, oil cost less than $15 per barrel, but today it's around $40

When oil reached $40 about 5 years ago, people thought it was very high - certainly by historical standards prior to about 2004.

How high must the price of crude oil be before you deem any surcharging for fuel not to be a rip-off ?

Can we be certain that the price of oil won't go up to $60 in the next 3 months ? Perhaps a significant event takes place in Saudi Arabia ? Or maybe Venezuela ? Or how about Nigeria ? Or maybe Russia decides to become much more assertive ?

23rd Jan 2009, 16:07
Airlines keep their fuel surcharge as a contribution towards their hedging losses.

Sir Lee Bīstard
23rd Jan 2009, 16:44
P&O Ferries are still fuel surcharging for Nov on Bilbao Portsmouth but Azamara Cruises have refunded the surcharge on a booked cruise for September:confused: Although it is hard to believe that anyone would do such a thing, I suppose it is what they think they can get away with (route monopoly anyone?).

23rd Jan 2009, 17:02
Oil is clearly on the rise (it was $29 a barrel at the start of Dec 2008 - today it's $43ish), but perhaps more significantly (from a UK perspective), the pound is getting spannered by the dollar. Oil is traded in dollars, and today Ģ1 only gets you $1.37.

From a motoring perspective, if you compare forecourt prices today to the last time they were at similar prices (pre the 'spike' in oil prices in 2008... hint... it was late summer 2006), then compare the price of a barrel of oil and also the exchange rate to that date in 2006, you can see where fuel prices in general in Britain are heading again.

I'll give you a clue. It's not down. And it'll be quite sharp very soon.

Then factor in the aspirations of OPEC. They want to see oil consistently around $100 a barrel and will action further production cuts in coming months to force the price back up.

Collapse of Sterling + credit crunch + global downturn + OPEC production cuts + rising unemployment = UK fuel prices on the up.

The figures I've quoted aren't theoretical - they're fact. Expect surcharges to remain, or return in areas where they've been withdrawn already. The price of a barrel of oil is only part of the issue, and oil is clearly rising again anyway.

Too often, attention is not given to the exchange rate when people are banging on about the price of fuel. Fact is, just talking about fuel prices in general in terms of the price of a barrel of oil in dollars is a complete and utter fallacy. Totally inaccurate way of looking at it, yet the media and the general population will continue to just talk about the price of fuel in terms of the price of a barrel of oil in dollars. It's just not a useful analysis at all.

When you do the oil price/forecourt/exchange rate comparison I went on about in the second paragraph, it becomes clear that forecourt retailers have cut their margin on fuel to achieve the prices they're charging today. They are doing the opposite of ripping off the public, which much as I find that both hard to swallow and painful to admit, it's probably true.

Likewise, not all UK airlines are ripping off the public by maintaining their surcharge policy. The ones that have cut them altogether have slashed their margins even more in effect, and possibly unsustainably so, given the current rise in oil prices and the exchange rate. So yeah - expect surcharges to return with some airlines.

Hedges are a factor, yes. Some airlines will have hedged long-term at a handsome rate of around $35 a barrel in December. Some won't have. Most airlines don't hedge their entire fuel requirment, rather, they hedge an element of it. Some airlines don't hedge much at all. And as mentioned in a post above, there's also a load of airlines that will have lost out on their previous hedges, and so will use the savings made on new hedges to offest those losses. And don't forget that there is a load of airlines that are still losing out on old hedges, because they hedged long-term at around $80+ a barrel.

It's too simplistic to not look at all of the factors when talking about fuel and surcharging.