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A recent article on fuel surcharges offers a hypothetical scenario of what consumers might expect in coming months or years:

“If fuel continues at this level, you may have a situation where an airline prices a ticket absent fuel,” said Terry Trippler of TripplerTravel. “Other than that they really don’t have a lot of options (to offset higher fuel costs).”

Much recent innovation in pricing in the travel industry (not just at airlines) has centered on the concept of “a la carte” buying. Pay only for what your use, not for a package of all the services available. So unbundling the cost of fuel isn’t entirely out of the realm of possibility.

Cruise lines and hotels have already done something like this, requiring a fuel surcharge that wasn’t included up front at the time of reservation. Travelers were shocked with a bill at the time of check-in. Shady? Yes.

But if fuel wasn’t a surcharge, and was simply a charge that everyone paid in full at the time of check-in, it might be less offensive to multitudes of travelers.

So what might this look like? You’d buy a ticket that covers the privilege of getting onboard, much like you pay a fee for renting a car. Your ticket would reflect your class of service, and any “amenities” you chose (food, baggage, early boarding, legroom… whatever) but the cost of the fuel wouldn’t be included up front. You might pay for the fuel at the time of check-in, or the carrier might give you the option of pre-paying (hedging?) and locking in a rate.

By charging the passengers for fuel on the day of travel, the airline would avoid the fluctuations of the oil market almost entirely. Fuel hedging strategies would be moot. Airlines that did this could sell seats without worrying about the price of Jet-A kerosene. And in a sense, this is logical: Hertz and Avis aren’t really affected by changes in oil prices, so why not Continental and jetBlue?

Of course, this would be awful for consumers, whose ability to predict the actual cost of travel would be flushed down the toilet. Budgeting would be harder. Travel expenses would be much more fluid, and the net effect on prices would likely be upward. And upward by a bit, since the fuel bill on a 7000-mile trip can change substantially with small shifts in the price of oil. “Low fares” would be a thing of the past, unless the airlines started “free fuel” promotions.

The saving grace for consumers is that it would take some cartel-like coordination to see all the major airlines start treating fuel this way. If it’s a single major airline that’s the first mover, there is bound to be a strong negative reaction in the media. But as the article cited above notes, it wouldn’t be the first time someone tried this:

If airlines do unbundle fuel costs from ticket prices, it would not be the first time. During the energy crisis of the late 1970s, charter airlines had separate fuel charges that were set just before takeoff.

Yesterday, it was charter airlines. Today, I wouldn’t be surprised to see Skybus or Spirit try something like this, since they’re already nickel-and-diming their customers and they’re known for doing anything to make a buck.

But either way, look out. Unbundled fuel could be coming your way, and you shouldn’t be happy.

(image)

Update: No kowtowing to teetotaling taxicabs
Remember the cabdrivers who were refusing to transport passengers from Minneapolis-St. Paul International Airport if they suspected the traveler was carrying alcohol? The airports commission has wisely reversed its earlier plans to label taxis as “wet” or “dry.” If a cabbie refuses a fare for any reason, he now has to go to the back of the line. Good. If you don’t want to transport people whom you find objectionable for whatever reason, don’t be a cabdriver. Simple enough.

Economy Parking, Premium Skycaps
Chicago’s O’Hare airport is getting skycaps at Economy Parking Lot E. The new service, run by BAGS, Inc., will allow parkers to check in and drop off their bags ($5 fee) before they head back to the terminal via the train. But you’re expected to drop off the bags a whole 2 hours before your flight. That seems like a stretch.

More airlines lower fuel surcharges
Lufthansa and Singapore Airlines are rolling back fuel surcharges for longhaul flights. Good for them, and for us.

Singapore Airlines’ gift from above
A large metal bolt fell off a Singapore Airlines 747 and hit an Australian man’s house. (He should be glad it wasn’t a DC-10 overhead.)

Behind the scenes at American Airlines
Peter Greenberg spent a week checking out American Airlines’ operations behind the scenes. The result is a CNBC special which aired Wednesday. I missed the first showing, but it’s being re-run on Sunday. Plus, clips from the show are available for download here. Will there be coverage of the mice that seemingly infest their planes?

Europeans: ask for your travel records
Privacy advocate Ed Hasbrouck advises Europeans to find out what’s in their travel records. In Europe, you own the rights to your data. In the U.S., the company that holds the data owns the rights. Might as well have a look, to see if there are errors. Much like looking at your credit report to look for fraud…

Ryanair revises fine print, battles its own employees
Britain’s Office of Fair Trading is forcing Ryanair to change the fine print in its ticketing contract. The changes make it easier to file a claim against the airline for lost, damaged, or delayed luggage, as well as expenses due to flight cancellation. This comes on top of employee actions, including unionization threats, promises of a strike by baggage handlers in Spain, and the refusal of Italian crew to sell food on board. (See here for the unionization campaign’s homepage.)

Terrifying liquid
Via Boingboing: a liquid whose name deserves all the TSA scrutiny it can handle. Best to pack this on in your carry-on, if you absolutely, positively need to bring central American cleaning supplies through an airport.

Terrifying lawns
Taking his work home with him? A Los Angeles plane mechanic has turned his front lawn into a mock airplane crash site for Halloween. It uses real aircraft parts from a Gulfstream. Considering it’s in LA, trick-or-treaters might be unfazed and think he’s running a filming location for “Lost.”

Sharkey strikes back
NY Times travel columnist Joe Sharkey, who survived the midair collision in Brazil a few weeks ago, and whose blog was peppered with hate-filled comments after he posted a short statement of concern for the fates of the pilots of his aircraft, lashed out against his (largely Brazilian) critics in a recent post. The investigation into the accident and the surrounding controversy has become quite the drama. Thusfar no word on his site on whether or not he is, in fact, Robin Leach.

Around the world, the issue of fuel surcharges has been getting a bit of press, and increasingly, its day in court.

In New Zealand, Qantas got nailed with a fine for false advertising, thanks to 122 convictions of “not disclosing the full cost of a fare, or imposing extra charges such as a fuel surcharge which should have been included in the price.” Air New Zealand was already convicted of similar charges months ago.

In Germany, on the other hand, consumer protection groups lost a battle. The discount airline Hapagfly (part of the TUI travel conglomerate) was found not guilty of charges fundamentally similar to the Qantas case in New Zealand. (Link is in German… keepin’ it local!) That decision contradicts another German court’s ruling against the carrier LTU which was found guilty of false advertising by virtue of excessively small print in newspaper advertisements. The Hapagfly case is going to a higher court.

Here’s hoping the tide is turning in favor of more accurate and transparent pricing.

While oil is still comparably higher than it was two or three years ago, it has pulled back nearly 20% from its recent highs. Airline fuel surcharges haven’t all fallen to earth by the same measure.

Two notable exceptions are Air France-KLM and El Al. KLM reduced their surcharge by 5 euros each way, while El Al cut theirs by $14 each way. Other airlines have been resistant, and others have even raised their surcharges in the past two weeks, despite the drop in fuel prices.

The entire practice is a sham. If the cost of doing business has increased as a result of fuel expenses, then the change should be reflected in the base fare. Call it a fare hike - which is what it is.

But the airlines like to be able to quote “base fares.” They have been able to game the system by quoting prices with “taxes and fees” extra. And now we see that airlines are illegally colluding to use fuel surcharges to keep prices higher: Two British Airways executives resigned over an investigation into the company’s surcharge practices.

To see anyone actually reducing the surcharge is refreshing and welcome, so hats off to Air France-KLM and El Al. But we can do better. Let’s aim for greater price transparency. Let’s get rid of fuel surcharges.

(image: DrunkatNYU)

Some good news for U.S. consumers. The Department of Transportation isn’t relaxing rules governing the advertisement of airfares after all. (Background here, here, and here.)

What this means: Airlines can’t advertise a $100 base fare and then slap a $100 fuel surcharge on there. They’ll need to include fuel surcharges in the base fare in all marketing. No Ryanair-style pricing in the U.S.

Other policies were considered, including both more and less restrictive options. See here for a full breakdown of the alternative proposals, and which airlines supported which option.

Though more “total price” advertising would be welcome, at this point I’m content to see status quo rule the day.

tags: travel | fares

You can be forgiven if you think it’s costing more to travel these days. A government report out this morning shows that consumer prices rose 0.4 percent last month. That might not seem like a lot if you’re talking about buying a magazine before check-in, but if you’re planning a vacation, it’s worse. And if you’re a central banker, 0.4 percent in a month is approaching panic levels.

The Labor Department strips out fuel and food prices from their measure citing them as too “volatile” (who needs to eat or drive after all?). So sectors that burn $71 a barrel oil reflected the rising price of oil the most in the official measure. And that means air travel. And hotels for good measure. Consider this excerpt from Bloomberg:

Marriott International Inc. and United Airlines are among companies charging more to recoup costs as fuel prices jump to record levels…The travel industry is taking advantage of strong demand to lift prices and protect profits from the rise in commodity costs. UAL Corp.’s United Airlines, Delta Air Lines Inc. and AMR Corp.’s American Airlines raised some one-way fares by $50 earlier this month. Rising travel demand combined with fewer aircraft seats help the carriers charge more for tickets.

Hotels are also getting more for rooms. Occupancy was up to 68 percent in the week ended April 8 compared with the same period last year and the average room rate rose to $99.62 a day from $91.65 in 2005, according to figures from Smith Travel Research.

“Utility costs are our biggest concern” after they’ve risen 10 percent to 15 percent, Bill Marriott, chief executive officer of Marriott International, said in an April 11 interview. “We are able right now to increase room rates, primarily because the market is so strong. So we have been able to pretty much cover these costs.”

Of course what consumers want is for the airlines and chains to eat the high costs and keep prices low in order to gain market share. But many of the bigs appear to be successfully passing the costs on to the consumer. Ugh. Just don’t tell Ben Bernanke.

–Dr. Vino

tags: travel | air travel | inflation