Anyone who thought falling oil prices would lead to the speedy scrapping of surcharges is sorely mistaken, writes Conor Pope
FUEL PRICES HAVE been on a roller-coaster ride this year. In January a barrel of oil broke through $100 (€80) for the first time, and prices kept climbing until July, when they topped $147 (€116) on the international markets. Experts agreed that prices were going in only one direction - and it wasn't down.
Airlines, which use vast quantities of aviation fuel, were badly hit by the rising prices, and at least 30 shut down in the first nine months of the year; most others were forced to introduce or raise their fuel surcharges, sometimes adding hundreds of euro to the price of long-haul tickets.
Tour operators, which had sold holidays at fixed prices earlier in the year, struggled to deal with the surcharges as charter airlines upped their prices almost overnight - in this country alone three went out of business.
Aer Lingus increased its fuel surcharges nine times in the two years until the end of July, mirroring the actions of most major airlines in Europe and the US, with the notable exception of the budget carriers, including Ryanair. It took the hit on rising fuel prices - and the moral high ground in condemning the surcharges as another example of other airlines ripping people off.
Then, almost overnight, everything changed. The price of oil started to fall, and kept on falling, to less than $60 (€47) earlier this month. The International Energy Agency now predicts that global oil demand will grow at its lowest rate in 15 years, and Goldman Sachs has revised its year-end forecast for crude to $70 (€52) from $115 (€86). The forecast for 2009 has been similarly pared back, to $86 (€64).
This should be good news for consumers and the travel industry at large, although anyone who thought falling fuel prices would lead to the speedy scrapping of the surcharges is sorely mistaken.
When Aer Lingus introduced its first fuel surcharge, in May of 2006, a barrel of oil was selling for just over $71 (€56). Last week a barrel was trading on the same markets for about $58 (€46).
Aer Lingus reduced its fuel surcharge at the end of October. On a return flight from Dublin to Boston it is now €120; on Dublin to Orlando flights it is €150. By comparison, British Airways charges £32 (€38) on return short-haul flights and £132 (€161) on long-haul flights of up to nine hours.
With oil so much cheaper now than it was when Aer Lingus introduced its first surcharge, should its passengers not have been able to expect bigger decreases? Ryanair certainly seems to think so. It dismissed the October reduction as a token gesture, and its head of communications, Stephen McNamara, accused the company of "ripping off its passengers and hiding behind unjustified and avoidable fuel surcharges". He said the "small decrease" fell "a long way short of the reductions we have seen in oil prices".
Aer Lingus defends the continuing surcharge, telling Go that the price of a barrel of oil today "bears no relation" to the cost of its aviation fuel, which it had hedged for this year and into next year.
A spokeswoman says the company "hedged at much higher prices as compared to what it has fallen to in recent times" and points out that recent price reductions were offset by a strengthening dollar, which has risen nearly 20 per cent against the euro since the middle of July. She did, however, offer a small crumb of comfort for hard-pressed consumers when she said the airline would continue to keep its fuel surcharge under "active review".
Other airlines have adopted a more aggressive approach. Last week AirAsia, a Malaysian budget carrier that serves a number of Australian cities, scrapped all its fuel surcharges. Its chief executive, Tony Fernandes, borrowing a page from Michael O'Leary's Bumper Book of Publicity Stunts(if he had written one), said it was "the first airline in the world that is completely getting rid of fuel surcharges".
In the US, many airlines have also scrapped the surcharge but then immediately folded the cost into the base price of the ticket. On one example recently cited by the airfare-comparison website Farecompare.com, an American Airlines flight from Dallas to Washington had a price of $680 (€538) with a $170 (€135) surcharge. Five days later the surcharge had been dropped, but the base price had increased to $850 (€673), meaning the net saving to the consumer was exactly zero, although the price is, arguably, that bit more transparent.