FUEL SURCHARGES
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FUEL SURCHARGES
The following was published today in Crikey.com.au:
"Ever wonder about that fuel surcharge that Qantas and others put on your air ticket? From my calculations they are making a profit on the surcharge alone without taking into account the airfare itself. Consider a recent flight from Melbourne to Sydney by a Boeing 737-800 (the new ones with the bent wingtips). 150 passengers on board. (92% load factor). Fuel surcharge $31 per head = $4,650. Actual fuel burn. 3,500KG = 4,600 LITRES approx. Fuel is hedged at better than $1 per litre. Do the math. Don't forget this is a SURCHARGE on top of the fare, whatever that is. The profit is supposed to be in the airfare itself. How do I know this? I was there."
Are there any experts out there able to validate this claim? If it's true, why don't the mainline media pick up on blatant rip-offs like this? I wonder if the fear of losing many millions of Qantas advertising budget has anything to do with their lack of concern?
"Ever wonder about that fuel surcharge that Qantas and others put on your air ticket? From my calculations they are making a profit on the surcharge alone without taking into account the airfare itself. Consider a recent flight from Melbourne to Sydney by a Boeing 737-800 (the new ones with the bent wingtips). 150 passengers on board. (92% load factor). Fuel surcharge $31 per head = $4,650. Actual fuel burn. 3,500KG = 4,600 LITRES approx. Fuel is hedged at better than $1 per litre. Do the math. Don't forget this is a SURCHARGE on top of the fare, whatever that is. The profit is supposed to be in the airfare itself. How do I know this? I was there."
Are there any experts out there able to validate this claim? If it's true, why don't the mainline media pick up on blatant rip-offs like this? I wonder if the fear of losing many millions of Qantas advertising budget has anything to do with their lack of concern?
Not just QF.
Whoever the guy that thought up the fuel surcharge/cost separation tactics, where ever in the world he is, is a guru in accounting/management circles.
It will never be removed/deleted/absorbed back into a total price.
One disappointing aspect is staff travel. So much for FOC or ID90's, as its plus this and plus that. And they're subload!
Whoever the guy that thought up the fuel surcharge/cost separation tactics, where ever in the world he is, is a guru in accounting/management circles.
It will never be removed/deleted/absorbed back into a total price.
One disappointing aspect is staff travel. So much for FOC or ID90's, as its plus this and plus that. And they're subload!
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Originally Posted by qfcainer
so why do we keep getting told by our managers that the surcharge only accounts for a small portion of the increase in the total fuel bill?
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do the math
the fact sheet on the qf website claims group pax. ( or is that guest
) numbers as 17,260,000 for the six months to 31/12/05.
Would someone please check my numbers because I'm feeling a little faint.
17,260,00 * 2 (whole year rough)
*2 ( two sectors per person)
* $31 ( min. per sector
= ..... wait for it.............$2.1 Billion ???????
) numbers as 17,260,000 for the six months to 31/12/05.Would someone please check my numbers because I'm feeling a little faint.
17,260,00 * 2 (whole year rough)
*2 ( two sectors per person)
* $31 ( min. per sector
= ..... wait for it.............$2.1 Billion ???????
Walter, FWIW, 2 billion is the figure that seems to be repeated by GD and allcomers when questioned about the increase in the fuel bill this year so the figures would seem to match.
Not saying it's right just that if the two do coincide it's to be expected.
Not saying it's right just that if the two do coincide it's to be expected.
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from the qf website...
The Executive General Manager of Qantas, Mr John Borghetti, said the cost of fuel remained a critical issue - not only for Qantas, but across the airline industry.
"We introduced our first fuel surcharges in May 2004, when crude oil was trading at US$40 a barrel," Mr Borghetti said.
"Since then, oil prices have nearly doubled and the benchmark Singapore jet fuel price has increased from US$44 a barrel to more than US$88 a barrel.
"Our 2005/06 fuel bill is expected to be around A$2.9 billion, and on current forecasts, approximately A$3.9 billion in 2006/07 after hedging.
"While we have hedged the crude oil component of our 2005/06 fuel cost at around US$56 a barrel, the unprecedented increase in the price of jet fuel means the Group's fuel bill will have risen by around A$1 billion after hedging, compared to 2004/05.
"Our fuel surcharges, including this latest increase, will only partially offset some of this very significant additional cost."
ok, so for 06/07 the fuel surcharge represents much more than half the total bill( and thats estimated at $31 but on average its more like 50) ... interesting stuff.
The Executive General Manager of Qantas, Mr John Borghetti, said the cost of fuel remained a critical issue - not only for Qantas, but across the airline industry.
"We introduced our first fuel surcharges in May 2004, when crude oil was trading at US$40 a barrel," Mr Borghetti said.
"Since then, oil prices have nearly doubled and the benchmark Singapore jet fuel price has increased from US$44 a barrel to more than US$88 a barrel.
"Our 2005/06 fuel bill is expected to be around A$2.9 billion, and on current forecasts, approximately A$3.9 billion in 2006/07 after hedging.
"While we have hedged the crude oil component of our 2005/06 fuel cost at around US$56 a barrel, the unprecedented increase in the price of jet fuel means the Group's fuel bill will have risen by around A$1 billion after hedging, compared to 2004/05.
"Our fuel surcharges, including this latest increase, will only partially offset some of this very significant additional cost."
ok, so for 06/07 the fuel surcharge represents much more than half the total bill( and thats estimated at $31 but on average its more like 50) ... interesting stuff.
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Originally Posted by HANOI
Walter
One sector = one pax , you appear to have doubled the number of pax by doubling the number of sectors per pax.
One sector = one pax , you appear to have doubled the number of pax by doubling the number of sectors per pax.
Did Qantas discontinue the use of through flight numbers within Australia so as to artificially inflate the numbers carried, and so make it look better and bigger than it really is? I am sure that even the statisticians are confused as to the definition of a passenger, or as the Yanks say, boardings.
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I don't know why they have surcharges. Surely if a business's costs/overheads increase they increase the price of the product.
If the increased cost of deisel fuel impacts on the bus company, bus fares go up.Who ever heard of bus fares with a surcharge. Or a surcharge on the Manly Ferry! By persisting with surcharges the airlines are asking for critisism when the public start working out the maths.
Hide it in your fare structure I say.
If the increased cost of deisel fuel impacts on the bus company, bus fares go up.Who ever heard of bus fares with a surcharge. Or a surcharge on the Manly Ferry! By persisting with surcharges the airlines are asking for critisism when the public start working out the maths.
Hide it in your fare structure I say.
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Originally Posted by king oath
I don't know why they have surcharges. Surely if a business's costs/overheads increase they increase the price of the product.
If the increased cost of deisel fuel impacts on the bus company, bus fares go up.Who ever heard of bus fares with a surcharge. Or a surcharge on the Manly Ferry! By persisting with surcharges the airlines are asking for critisism when the public start working out the maths.
Hide it in your fare structure I say.
If the increased cost of deisel fuel impacts on the bus company, bus fares go up.Who ever heard of bus fares with a surcharge. Or a surcharge on the Manly Ferry! By persisting with surcharges the airlines are asking for critisism when the public start working out the maths.
Hide it in your fare structure I say.
qfcainer
Not sure that is entirely correct. For myself as CX staff I get hit with a fuel surcharge if I travel on CX, QF, BA, AA, UA, ETC but don’t with VS as they don’t charge a fuel surcharge on staff travel.
oil surcharge on stafftravel is the biggest joke of all, especially when it doesn't apply to interline tickets.
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funnily enough, the Melbourne brance of a smallish Courier comanpany i know hasnt added a seperate fuel surcharge like every other carrier, but simply increased our cartage rates by the equivilent of a seperate fuel surcharge, and we have gained a significant number of clients by advertising No added fuel surcharge. yet our rates are equal to most of our competitors.
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Looks like the days of the true Low Cost Carrier is at an end.
Lower cost is more likely the expression but lets face it - airlines such as VB and JQ run close to the line as it is.
When it runs that lean what is left to give?
Just put up the damned prices rather than slash the hell out of service and engineering etc.
Sure it aint cheap or pretty but at least they still provide relatively ok value for money rather than these stupid $29 sales etc which benefit no one.
Besides... a $2000 return fare to the UK is still bloody good value for money in my book.
Equivalent of just over 2 weeks wages (judging by the average wage being about $50k)
Lower cost is more likely the expression but lets face it - airlines such as VB and JQ run close to the line as it is.
When it runs that lean what is left to give?
Just put up the damned prices rather than slash the hell out of service and engineering etc.
Sure it aint cheap or pretty but at least they still provide relatively ok value for money rather than these stupid $29 sales etc which benefit no one.
Besides... a $2000 return fare to the UK is still bloody good value for money in my book.
Equivalent of just over 2 weeks wages (judging by the average wage being about $50k)
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Simple Maths
B A L,
Shame QF do not only fly SYD-MEL because you are right they would be making a killing!
Just do you maths on a SYD-PER or BNE-PER sector!
These surcharges (domestically) work in favour of the carrier on short sectors I am sure CBR-SYD looks even better than SYD-MEL.
I hope you, or the poster on crikey have not wasted money on an economics degree. If you have seek a refund!
I am not in favour of the surcharge as QF (and others) add it quickly, but I do not think they will ever remove it!
Shame QF do not only fly SYD-MEL because you are right they would be making a killing!
Just do you maths on a SYD-PER or BNE-PER sector!
These surcharges (domestically) work in favour of the carrier on short sectors I am sure CBR-SYD looks even better than SYD-MEL.
I hope you, or the poster on crikey have not wasted money on an economics degree. If you have seek a refund!
I am not in favour of the surcharge as QF (and others) add it quickly, but I do not think they will ever remove it!
I thought I'd try a get a few facts (I know I know - this is a rumour network) about how much QF pays for it's fuel. That's not easy to do since that's a closely guarded commercial secret. But with a bit a digging around you can make some educated guesses. Here we go ....
First some conversion figures:
1 barrel = 42 US gallons
1 US gallon = 3.785 litres
1 litre JetA-1 ~ 0.79 kg
1 USD = 1.30 AUD
Talking to refuellers around Australia over the years about the cost of aviation fuel has left the lasting memory that the cost of Jet A-1 fuel was always around half the cost of petrol. If still valid that means that Jet A-1 should retail at about $0.70 per litre. Giving that QF has hedging in place they probably pay a bit less. How much less? Dunno - but lets say %10 - which means around $0.63 per litre. This is a rough guess. Lets see if we can refine it - so to speak !
The website: www.icispricing.com gives world prices for various chemicals including crude oil and Jet fuel. It's a subscription service but as an example of what subscribers get it gives some historical examples. The examples for oil and fuel are dated 8 Nov 05 and gives the SIN crude oil price as USD 62 per barrel (= USD 1.4762 per US gallon) and the SYD Jet A-1 fuel price as USD 1.9688 per US gallon. Whilst the data is some months old, it does reveal the cost of refining, shipping etc. 1.9688/1.4762 = 1.3337. ie There is a 33% mark up from the price of crude oil to the price of Jet A-1 in SYD. This percentage markup is probably constant.
Now QF have publicly stated that they have hedged their fuel prices for 05/06 at USD 56 per barrel (of crude oil). Applying the 33% markup gives 56/42*1.3337 = USD 1.7783 per gallon Jet A-1. This is 1.7783*1.30/3.785 = AUD 0.6108 per litre. Which is pretty darn close to my rough guess (0.63) so I am confident that QF pays about AUD 0.61 per litre.
Now how does this relate to the fuel surcharge? Lets look at in terms of how much fuel each passenger buys. The domestic levy is $31 per pax = 31/0.61 litre per pax = 31/0.61*0.79 = 40.1475 kg per pax. ie $31 buys 40kg of Jet A-1 fuel.
How far does 40kg get you? Lets say a 738 with 125 pax. They've bought 125*40 = 5000kg of fuel. The cruise fuel flow is about 2500kg/hr so about two hours worth of flying. That'll get you between east coast cities, but it won't get you across the country. So if the sector is less than two hours the surcharge is more than the total cost of fuel, but on sectors more than two hours it is less than the total cost of fuel. So it probably averages out.
But here is the rub. Is the surcharge meant to cover the total cost of fuel or only the increased cost when crude prices increased? When crude oil was around USD 30 per barrel there was no surcharge. QF introduced the surcharge to cover the increased cost of fuel - ie the difference between $30 and $56 per barrel. So the surcharge should only cover about half the fuel cost - but domestically it appears to cover the total cost.
What about internationally? The Tasman surcharge is $56 which buys you 73kg of fuel. A 763 with 200 pax has bought 14.6 tonnes of fuel. At 5 tonnes per hr this gives a flight time of about 2.9 hours. This is about the average flight time. So like their domestic friends, the Tasman pax have bought all the fuel.
The International surcharge is $98 which buys you 127kg of fuel. A 744 with 320 pax has bought 40.6 tonnes of fuel. At 10 tonnes per hour this gives a flight time of four hours. This is less than most international flights - lets say an average of 10 hours - so these pax are buying about 40% of the fuel required.
In summary:
- QF pays about $0.61 per litre for its fuel.
- The Domestic surcharge of $31 buys 40kg of fuel, this appears to cover the total cost of fuel.
- The Tasman surcharge of $56 buys 73kg of fuel, this appears to cover the total cost of fuel.
- The International surcharge of $98 buys 127kg of fuel, this covers about 40% of the cost of fuel.
First some conversion figures:
1 barrel = 42 US gallons
1 US gallon = 3.785 litres
1 litre JetA-1 ~ 0.79 kg
1 USD = 1.30 AUD
Talking to refuellers around Australia over the years about the cost of aviation fuel has left the lasting memory that the cost of Jet A-1 fuel was always around half the cost of petrol. If still valid that means that Jet A-1 should retail at about $0.70 per litre. Giving that QF has hedging in place they probably pay a bit less. How much less? Dunno - but lets say %10 - which means around $0.63 per litre. This is a rough guess. Lets see if we can refine it - so to speak !
The website: www.icispricing.com gives world prices for various chemicals including crude oil and Jet fuel. It's a subscription service but as an example of what subscribers get it gives some historical examples. The examples for oil and fuel are dated 8 Nov 05 and gives the SIN crude oil price as USD 62 per barrel (= USD 1.4762 per US gallon) and the SYD Jet A-1 fuel price as USD 1.9688 per US gallon. Whilst the data is some months old, it does reveal the cost of refining, shipping etc. 1.9688/1.4762 = 1.3337. ie There is a 33% mark up from the price of crude oil to the price of Jet A-1 in SYD. This percentage markup is probably constant.
Now QF have publicly stated that they have hedged their fuel prices for 05/06 at USD 56 per barrel (of crude oil). Applying the 33% markup gives 56/42*1.3337 = USD 1.7783 per gallon Jet A-1. This is 1.7783*1.30/3.785 = AUD 0.6108 per litre. Which is pretty darn close to my rough guess (0.63) so I am confident that QF pays about AUD 0.61 per litre.
Now how does this relate to the fuel surcharge? Lets look at in terms of how much fuel each passenger buys. The domestic levy is $31 per pax = 31/0.61 litre per pax = 31/0.61*0.79 = 40.1475 kg per pax. ie $31 buys 40kg of Jet A-1 fuel.
How far does 40kg get you? Lets say a 738 with 125 pax. They've bought 125*40 = 5000kg of fuel. The cruise fuel flow is about 2500kg/hr so about two hours worth of flying. That'll get you between east coast cities, but it won't get you across the country. So if the sector is less than two hours the surcharge is more than the total cost of fuel, but on sectors more than two hours it is less than the total cost of fuel. So it probably averages out.
But here is the rub. Is the surcharge meant to cover the total cost of fuel or only the increased cost when crude prices increased? When crude oil was around USD 30 per barrel there was no surcharge. QF introduced the surcharge to cover the increased cost of fuel - ie the difference between $30 and $56 per barrel. So the surcharge should only cover about half the fuel cost - but domestically it appears to cover the total cost.
What about internationally? The Tasman surcharge is $56 which buys you 73kg of fuel. A 763 with 200 pax has bought 14.6 tonnes of fuel. At 5 tonnes per hr this gives a flight time of about 2.9 hours. This is about the average flight time. So like their domestic friends, the Tasman pax have bought all the fuel.
The International surcharge is $98 which buys you 127kg of fuel. A 744 with 320 pax has bought 40.6 tonnes of fuel. At 10 tonnes per hour this gives a flight time of four hours. This is less than most international flights - lets say an average of 10 hours - so these pax are buying about 40% of the fuel required.
In summary:
- QF pays about $0.61 per litre for its fuel.
- The Domestic surcharge of $31 buys 40kg of fuel, this appears to cover the total cost of fuel.
- The Tasman surcharge of $56 buys 73kg of fuel, this appears to cover the total cost of fuel.
- The International surcharge of $98 buys 127kg of fuel, this covers about 40% of the cost of fuel.
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I dont know about economics degree but my maths degree is not yet under threat.
The numbers are from QF, not me. HANOI you may be right but no one will know and I doubled the numbers to represent a whole year and two sectors per person. Just estimates.
As for the surcharge it was introduced at $40/barrel so maybe you could do some guestimates at that rate margin.
As for staff travel a 737 uses about 30-50 kg for each extra tonne carried so you are looking at 3-5 kg of fuel TOTAL per traveller and even a maxed out 744 will use under 400kg per tonne carrried so thats less than 40kg for a staff traveller. No wonder they feel so ripped off. Engagement at work.
Also the average 744 flight is about 8-9 hrs over many years.
the short answer to this is the fuel surcharge I believe covers almost all the fuel cost, not the increase.
At the end of it though the fuel surcharge does not really represent a large amount of money or percentage of the ticket except on shorter flights. I think the anger felt by punters far out weighs the benefit of "transparency" and the world's airlines have made a big mistake and should just put standard fares up. I think the fuel surcharge represents incompetence on the managements behalf because it accentuates the negative which is surely one of the first lessons of marketing and advertising( sadly no degree held there but if QF managers are anything to go by it couldn't be too hard to get one) and discourages punters from flying at all and encourages qf staff to use virgin which many do.
The numbers are from QF, not me. HANOI you may be right but no one will know and I doubled the numbers to represent a whole year and two sectors per person. Just estimates.
As for the surcharge it was introduced at $40/barrel so maybe you could do some guestimates at that rate margin.
As for staff travel a 737 uses about 30-50 kg for each extra tonne carried so you are looking at 3-5 kg of fuel TOTAL per traveller and even a maxed out 744 will use under 400kg per tonne carrried so thats less than 40kg for a staff traveller. No wonder they feel so ripped off. Engagement at work.
Also the average 744 flight is about 8-9 hrs over many years.
the short answer to this is the fuel surcharge I believe covers almost all the fuel cost, not the increase.
At the end of it though the fuel surcharge does not really represent a large amount of money or percentage of the ticket except on shorter flights. I think the anger felt by punters far out weighs the benefit of "transparency" and the world's airlines have made a big mistake and should just put standard fares up. I think the fuel surcharge represents incompetence on the managements behalf because it accentuates the negative which is surely one of the first lessons of marketing and advertising( sadly no degree held there but if QF managers are anything to go by it couldn't be too hard to get one) and discourages punters from flying at all and encourages qf staff to use virgin which many do.
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AS expected, Qantas has increased the fuel surcharge by (wait for it) 100% on long haul journeys. The domestic surcharge remains unchanged, and nothing in the media about Jetstar surcharges. Clearly, the mainline International customer is subsiding the domestic ones and bus travellers on Jester. Where is the equity in the increase and differentiaion?
Is it time for the ACCC to start asking some serious questions?
Is it time for the ACCC to start asking some serious questions?