Read more »

"/>

Why Do Airlines Include Fuel Surcharges Instead of Raising Fares?

Airlines have been tacking fuel surcharges onto their fares for years, and every so often the issue comes up again in the news media.  CNN.com today carries an article by Brett from Crankyflier.com looking at this issue.  Brett’s stuff is always detailed and well written, but I wanted to clarify one thing he says in the article.  He notes that airlines use fuel surcharges instead of raising fares because “it’s easy” to load the surcharges and unload them when fares go down.

While that may be true, it’s not the full answer (my thanks to friend/reader TL for bringing this up to me years ago).  There is another reason airlines go this route:  Corporate and Private Fares.

Airlines are a bit hamstrung by their corporate and private fares because they are limited in how they can increase them.  Some corporate fares are at a set price, so carriers cannot simply raise them as they would leisure fares.  Other corporate fares are a discount off a given fare class; in that case, any fare increase is discounted.

However, if they tack on a fuel surcharge separate from the fare, the corporation (in most cases) absorbs the full amount.    The fuel surcharge gives them the best bang for the buck.

So while it does seem kinda silly that the airline is trying to “hide” the fare increase, there’s a business reason they’re doing it that way.  And, oddly, it ends up benefiting the leisure traveler.  If they needed to generate $20 of revenue per ticket, they may have to raise all fares by $25 knowing that a significant percent of their tickets are sold under corporate discount plans.  With a fuel surcharge, they can just tack on the $20.  (I know, small consolation.)

Did you enjoy this post?
Sign Up to Receive 1 Email Each Day
Join the more than 7000+ people who get 1 email each day with all the airline news, credit card ideas and general nonsense we've provided for more than 10 years.
  1. Good additional point for my story. I’m actually curious how many of these corporate contracts still work that way. Things have been changing over the last few years on how these deals work. But you’re right, this is probably part of it.

    There is also the issue internationally where airlines use the YQ surcharge instead of the Q surcharge. Those YQs don’t get taxed from what I can tell. BA, for example, uses that. So that would be an additional reason but it’s not as widespread.

  2. As far as I know, domestic corporate fares seem to be more a percent off published, while international have more of the fixed price option. In either case, the fuel surcharge would still apply to corporate/private fares from my understanding (and in turn generate more revenue than a fare hike).

  3. I spoke with someone on the inside and was told that in general, surcharges still are non-discountable, but they rarely work domestically because low cost carriers won’t match.

  4. Interesting. Thx for the follow up. They have been successful using “holiday surcharges” domestically though, yes?

  5. Holiday surcharges, yeah. But those are usually not matching LCCs anyway I think.

Leave a Comment


NOTE - You can use these HTML tags and attributes:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>