Oil is trading at $48 a barrel, but fuel surcharges and fees remain

by Christopher Elliott

What’s wrong with this picture? Oil just broke through the $50 barrel-mark, with December crude futures trading between $48 and $49 a barrel at this hour. Yet many airline fuel surcharges and and fees remain.

The only bright spot for passengers?

Airlines have reconsidered their frequent flier program cuts in response, they say, to “customer feedback.” (Interestingly, at least one airline has said in almost the same breath that it’s firmly committed to “a la carte” pricing. Go figure.)

It will be interesting to see next quarter’s airline earnings. With recent cutbacks in routes and layoffs, dramatically lower fuel prices, and hundreds of millions of extra dollars in “ancillary” revenues from the new fees, it could be a very good quarter for the airline industry.

And 2009? If this keeps up, they could be rolling in profits.

But will it be a good year for airline passengers? Don’t hold your breath.

(Respect to our friends over at The Big Picture for keeping an eye on oil prices.)

Published on November 21, 2008 ·

Comments

9 Responses to “Oil is trading at $48 a barrel, but fuel surcharges and fees remain”

On November 21st, 2008 at 2:55 pm Alan Fiermonte said

The ErrorLines should have called it by it’s rightful name from the beginning, a “We-Don’t-Have-a-Sensible-Post-Deregulation-Business-Model” Surcharge. -Alan Fiermonte, down2earth adventures
On November 21st, 2008 at 3:04 pm Steve Mencik said

Please tell me that the fact that the surcharges remain doesn’t really surprise you.
On November 21st, 2008 at 3:07 pm Christopher Elliott said

Of course not!
On November 21st, 2008 at 3:15 pm Lyngengr said

Hey, look on the bright side. At least the airlines aren’t asking for a government bailout.
On November 21st, 2008 at 3:28 pm The man who notices things said

Anyone notice an interesting point in that graph? Demand is only down about 4% Its amazing how elastic the demand is.

The prices dropped like a stone with a mere 4% drop in demand - does anyone not fear what it will go to when demand returns after the recession is over? Oil will be at $200 bbl almost instantly when demand returns to summer 2008 levels. .
On November 21st, 2008 at 9:45 pm Frank said

NOT ACCORDING TO THIS SITE:
http://www.airlinefinancials.com

http://seekingalpha.com/article/106159-airline-industry-2009-recovery
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It will be interesting to see next quarter’s airline earnings. With recent cutbacks in routes and layoffs, dramatically lower fuel prices, and hundreds of millions of extra dollars in “ancillary” revenues from the new fees, it could be a very good quarter for the airline industry.
On November 21st, 2008 at 10:15 pm Frank said

After reviewing recent traffic reports and capacity guidance, it is easy to make an argument there is still 10-15% excess capacity which will encourage fare sales and lower overall yields into 2009.

Based on estimated earnings for year 2008, the largest 8 airlines are projected to lose over $5.3 billion (does not include a few $billion more in non-cash write-downs).In spite of creative ala carte fees for everything from fuel surcharges to a blanket, 2008 revenue was not enough to cover the real costs of airline operations. Southwest’s fuel hedges were the only reason they had a profit.

Assuming October traffic demand carries forward through this year and start of 2009, the 4th quarter revenue/cost projections do not indicate a profit until traffic increases or/and fuel cost projections are reduced.
On November 22nd, 2008 at 9:19 am DaveS said

The “fuel surcharge” always has been simply a way to express part of the cost of doing business as a separate figure in order to make the fictitious “base price” appear lower. When fuel prices were high, there was perhaps some sense of understanding that airlines needed to raise prices, and if they wanted to express it in this way, people seemed to accept it. But now that the fuel prices have plummeted, the fact the “fuel surcharge” remains simply exposes the fiction. It always has really been a bait and switch tactic, but now there is no longer the fig leaf of actual high fuel prices to cover it. When will the airlines be investigated for fraud, which is what this scheme amounts to?
On November 22nd, 2008 at 12:13 pm Cliff Woodrick said

With today’s economy, watch demand decease and then watch the fares drop. If the airlines cut the number of scheduled flights this also hurts them as they still have to pay for the laid up aircraft so they lose. I see the airline dropping some of the anticustomer things and compete for us - THE CUSTOMER. At least - those who can afford to fly.