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.

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