Hate Surcharges? Just Wait; the First Domino Already Fell

A resident of Austin was complaining on a local TV station about continuing energy surcharges — on prices of airplane tickets, electricity, and other things — at a time when oil prices have tumbled.

Presumably, instead of raising nominal prices, companies imposed surcharges last year to convince customers that the increases were temporary; but with the average variable cost of production down, why hasn’t competition forced prices down?

My advice to the woman is: wait, it will. We saw recently that US Airways backed down from charging for soft drinks; and I expect that as product demand declines further, some firm will break ranks and cut out surcharges — and others will follow shortly.

Consumers seem generally convinced about the existence of conspiracies; yet experience repeatedly shows us that it doesn’t take very many firms to get to a competitive solution — including the removal of surcharges when input prices fall back down.


This doesn't take into account the fact that airlines have been crying poverty for years, cutting back on virtually all services and laying off staff. I have always fully expected that these "surcharges" were permanent price increases.

My interpretation is, one airline added a surcharge, people continued to buy plane tickets (perhaps partly because of loyalty programs or because of regional limitations on service), so other airlines followed suit because it appeared people were willing to accept them. Now fuel costs have dropped, but with the economy falling apart and airlines (at least claiming to be) on the brink of collapse, I would be very surprised, nay, shocked, to see any of them drop any fees, as they are presumably a significant source of revenue.


Surcharges are very different from charging for soft drinks which requires passengers to have a handful of dollar bills and the unpleasant experience of having to choose to pay $2 for a can of coke which they know costs 50 cents and they are used to getting for free. This is a magnified unpleasantness which can potentially carry over to an overall bad customer experience the likes of which could send a customer to a competitor next time. Citing this change is a bad example.

Most surcharges are folded into the price of a ticket (or other service) and are actually paid much later via the credit card the tickets were purchased on.

The in-between situation is the per-additional-checked-bag surcharge. Presumably exeryone saves money if the plane is lighter (requiring less fuel) when fewer people check bags and they get to advertise lower prices.


But within a day of US Airways removing beverage prices, they added a non-monetary surcharge elsewhere. As would be predictable to anyone who has flown with them since they enstated baggage check fees, they've now had to decrease the allowable size of carry-on bag. You may not have to pay for an orange juice, but that's being offset by having to either carry a smaller bag or pay a $15 check fee you didn't previously. For my own part, I expect it will end up costing me more.


I'd have to disagree with the writer. I believe that the only reason surcharges imposed as a result of the oil crises should have been removed as soon as the price of crude took a steady downward slope. I believe the only reason surcharges are slow to be removed is that there is insufficient media interest or persistence. It's not until there is a public (media) outcry that these types off additional fees are reviewed.


interesting that Southwest still has both free drinks and free checked luggage (no surcharge for either the first or the second checked bag) *and* cheaper fares (usually). I took a Southwest flight this past weekend and we were discussing it.


I've been flying Southwest too. What are these fees and surcharges of which you speak? :)


I imagine many of these companies procure a portion of their supply through either long term contracts or they have purchased hedges against further price increases. Accordingly, their fuel acquisition costs could fall much more slowly than the daily market price.

Some may recall that it was a successful hedging strategy that enabled Southwest and JetBlue to maintain margins when fuel costs went up. Search Google and you'll see stories from last month of Southwest having to write down earnings due to losses on fuel hedging as prices declined.


This is why I only use travel websites that list the total ticket price. Many list the base price and surprise you with additional fees at checkout.

As far as Southwest goes, they contracted their fuel prices WAY before the gas crunch. If they hadn't, their prices and surcharges would have gone up as well. To think otherwise and praise them as saints is very naive.


I believe that the surcharges did not occur as a response to high oil prices in the past, rather companies realized they had to dig themselves out of this massive hole they were in. Once they realized that they could charge for some services without altering the quantity of tickets sold, they began doing so. Maybe people have become more sensitive to these surcharges with the downturning economy.


Didn't the airlines recently get sued for inflated fuel surcharges -- and lose? https://www.airpassengerrefund.com/


Speaking of surcharges, how about those ATM fees? There are major label bank ATMs here in San Francisco that will gladly let you withdraw your own money for $3.00, with a $20 minimum. That's a 15% tax if you're only withdrawing $20, and those fees can really add up for somebody on a fixed income.

If I remember correctly, banks started increasing ATM fees so that they could "be more competitive." Think there's any chance of these fees getting lowered/abolished?


I fly AA, for the miles program for the most part, and they're still doing their funny bit where each seat costs a different amount. Honestly people understood why the surcharges where there when oil was $145 a barrel, now at 40 its a bit harder to see the need.

If airlines wern;t so hostile to each other, or in such a competitive market, i could see them keeping it, people have in a sense gotten used to the prices, but if one breaks ranks AND CUSTOMERS FIND OUT ABOUT IT, then everyone wil have to, unless they are, like the conspiracy theorists believe, simply moving the charges somewhere else. I'd like to see a graph of price vs time over the past 6 months.

but i think teh key to why customers haven't come running yet is because many of them are not aware or book flights in advance. Personally, i don;t expect this to last too long if sites like expedia do their job right.


The story I was given is that they are not yet paying current prices because of futures contracts at the old price. No answer when I asked why there wouldnt be some reduction for the portion of fuel bought at existing prices though...

But if it is a case of hedging rather than just taking advantage then you may be right.


I have to disagree with the authors, surcharges are going to stay in the airline business and in probably all other sorts of businesses that currently have them. We the economic crisis, firms need all the source of revenue possible to stay afloat. I cannot see and company cutting on revenue to please customers who in the end will surely keep buying the tickets.

My opinion is that they will switch around were they charge you a little bit extra or where they save a little money, but in the end flyers will have to keep paying the same amounts.


I think its ridiculous all these things they decide to charge us for that we never used to get charged for...maybe I wouldn't be upset if I had always been charged to check additional bags of luggage on a flight. There are too many rules & charges at the airport, I guess thats what we have to deal with after 9-11.

David B.

Southwest's fares are always higher than anyone else's. On Friday I flew to Louisville on 1-day notice on United for $250 return from Logan. SW wanted over $800 from Manchester. It's as far to one as the other, so I don't care which one I use.

Maybe I'm doing it wrong, but without fail SW is more expensive than anyone else. Maybe you should check the competition before assuming that SW will be lower.

Back to the topic, yes, the fuel surcharge should go, but it'll just get buried elsewhere in the dozen or so other b.s. fees and taxes.


Here in Australia, a couple of the airlines have (albeit recently, and only partially) begun to remove some of the fuel surcharges they imposed during the long period of oil price increases.

Hang in there!


We recently did this in economic class. FIrst, the reason why the price hasnt gone down, in other words, why didnt the demand curve make a leftward shift? well that is because, no new firms were able to enter the market keeping the other firms current price or due to scarcity keep the price higher than MC = MR. and not D (AR) = MC = MR -- socially optimal. Also, for the air plane comp is an example of a oligopoly. Scarcity of hubs/gates, milage prgm, restrictions against foreign comp keeps the barriers to entry high. And thus, above P>MR=MC apply - and explains the reason.


I think surcharges are dishonest. It's a way of luring customers in with a nice low fare to get their "foot in the door" so to speak. Then BAM, you see the surcharges once you've invested the time and effort to book a flight. They should *outlaw* surcharges and just have it folded into the price of the ticket to simplify the way we choose our carriers.


Our local power companies added a multiplier as a form of surcharge. It got as high as 1.2 but right now it's around 0.8 so it's actually reducing the bill.