Airlines drop fuel surcharges, and fares start to fall

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Almost on cue, airlines have started to reduce or eliminate fuel surcharges, bringing down ticket prices.

Virgin Blue and AirAsia this month became the latest airlines to join the growing list of carriers to retreat from their fuel surcharges.

Virgin cut its surcharge by 20% on Virgin Blue domestic, Pacific Blue trans-Tasman and Pacific Island flights. AirAsia dropped fuel surcharges on all its flights, including on long-haul carrier AirAsia X.

The announced surcharge changes came less than a week after Vaughn Cordle, chief analyst with AirlineForecasts, predicted that the combination of plummeting oil prices and weak traffic likely would prompt substantial reductions in airfares next year.

Average fares next year should fall between 7% and 10% and possibly as much as 12%, depending on fuel prices and traffic trends, Cordle said.

The AirlineForecasts analysis indicates a strong correlation between fuel prices, which have been in sharp decline, and fares.

With fuel costing a bit more than half of what it did during its summer peak, the pressure will be on airlines to drop fares and surcharges.

Passengers aren’t the only ones who are joining the clarion call for lower prices. Sen. Robert Menendez (D-N.J.) has been demanding lower fares and more price transparency.

But with airlines reporting significant losses across the board for the third quarter, traditionally their strongest reporting period, the carriers are unlikely to be so willing to sound a retreat on anything that raises revenue.

“Airlines have been behind for so long,” said Darin Lee, a principal at LECG. “They need to better align price with cost.”

Aligning those prices, experts said, includes better accounting for the costs to passengers.

Most airline passengers who participated in a recent survey by Amadeus said while they resent paying most of the new carrier fees, they understand the reasoning behind the additional charges.

“The majority of air travelers (85%) dislike paying fees for services they received free as little as a year ago,” Amadeus reported. “But … many consumers (52%) not only understand why airlines have embraced the a la carte approach, but they also see value in the choices it brings to the flying experience.”

Amadeus conducted the telephone survey Oct. 16 to 20 among 2,000 randomly selected adults in the U.S. The Flying a la Carte survey results include responses from 735 adults — 366 men and 369 women — who had flown at least once in the last 12 months. The margin of error is plus or minus 4%.

Of the air travelers surveyed, 53% agree with the statement “I prefer the cheapest base ticket fare available so I can then pick and pay for extra services I want.”

One in 10 say they do not mind paying for optional amenities individually. Only 18% prefer an all-inclusive ticket with its higher price. Less than a third of respondents think airlines have gone too far with new fees.

“On the flip side, there is strong sentiment that some items, especially checked bags, should remain free,” Amadeus reported.  “Half of respondents indicate that ticket fares should include first or second checked bags.”

Also, 17% feel blankets and pillows should be free, and 15% want free seat selection.

The Amadeus research suggests transparency is a major consideration for passengers; they want to know what they’re paying for.

“Travelers too often are not made adequately aware of checked baggage fees and other extra charges,” Menendez said. “Airlines can’t expect to pull a fast one on American families by surprising them with additional costs.”

In last month’s third-quarter earnings calls with analysts, airline executives made it clear they expected to maintain and expand their programs to charge extra fees. Only Southwest has remained stubborn in its refusal to do so.

Many Wall Street analysts are predicting profitable months ahead for airlines, based on the assumption the carriers will be able to maintain or increase fares and other fees as they control capacity growth. 

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