Oil price surge: How will plane fares be affected?



Russia’s invasion of Ukraine has taken a terrible human toll. Vladimir Putin’s aggression has triggered many other repercussions, increasing the price of many commodities – including oil.

Some travel firms are already sending out demands to customers for more cash. But there are long-established rules and practices on flight surcharges. These are the key questions and answers.

What’s the problem?

The price of Brent crude, which directly affects the cost of aviation and marine fuel, has emerged as high as $140 per barrel – almost twice the price it was at the start of 2022.

Fuel is one of the key costs of travel: for aviation, the ferry and cruise industries, and for ground-based operators. Some firms are partially protected by “hedging” arrangements – an agreement to buy a certain amount of fuel their fuel needs at a specific price.

But as a result of the coronavirus pandemic, many companies have opted not to hedge because of the costs involved in this form of financial insurance. They are now seeing the cost of providing their promised service rise significantly higher than before.

Add in the longer routings that some airlines are having to fly to avoid Russian airspace, and the economics of travel have changed substantially.

I have a flight booked. Will I be asked for more money in order to fly?

No. You will not turn up at Heathrow or Manchester and find you are asked for more cash. In the past 15 years I am unaware of carriers going after passengers who have paid in full being asked to pay more before being allowed on board.

So will this affect future bookings only?

For airline passengers, yes. But travelers who have booked a package holiday, or transport arrangement such as a cruise, could be asked for cash on existing bookings.

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For example, P&O Cruises “reserves the right to vary prices up or down at any time up to 20 days before departure to allow for variations in the price of your package due to changes in transportation costs such as fuel”.

What are the rules for package holidays?

Tour operators (holiday companies) are allowed to ask customers who have already paid for their trip for more money, if they can demonstrate that their costs have risen sharply. Which, in these dark days, should not be difficult.

But there are strict conditions. The Package Travel Regulations 2018 say the price can be increased at the latest at least 20 days before the start of the trip. The contract must state expressly that such an increase may be made (most firms’ terms and conditions make this part of the contract). And the rise can be only for these specified reasons.

  • “Price of the carriage of passengers resulting from the cost of fuel”
  • “The level of taxes or fees … including tourist taxes, landing taxes or embarkation or disembarkation fees at ports and airports”
  • “Exchange rates relevant to the package”

Can I ask for proof?

And it is. The organizer of the holiday must provide justification “clearly and understandably”, together with a calculation. It follows that if no such explanation is forthcoming, you do not need to pay any surcharge.

At least one operator is writing to customers asking simply for extra “because of the fuel rise and additional taxes” without giving any details of what the airline has demanded from them.

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Mentioning “additional taxes” also sounds highly implausible. The Independent is unaware of any such levies. The company in question has been asked to supply evidence.

Is there any limit to the surcharge?

Not if the organizer can demonstrate that their costs have risen. But if the proposed surcharge is eight per cent or more of the total price, then you can cancel. Unsurprisingly, most surcharges are for exactly eight per cent – ​​representing an extra £80 on a £1,000 holiday.

If your tour operator is part of Abta, the travel association, then they must absorb the first two per cent of any increase. So you would not be asked for less than £20 on that £1,000 holiday.

Is there any “opposite of surcharge” if costs fail?

Yes, under the Package Travel Regulations you are supposed to be entitled to a refund if the organizer’s costs come down. But I have never seen such a case.

Turning to airlines – many of them already impose surcharges, don’t they?

And it is. In 2006, British Airways took the “very regrettable” step of increasing its fuel surcharge. As the price of oil hit $70 a barrel, long-haul passengers were faced with paying £70 on a return trip.

“We have little choice but to pass some of our extra costs on to our customers,” said the airline’s commercial director at the time.

“We believe that it is better to be transparent with our customers by showing the level of fuel surcharge they are paying rather than hide the costs by raising fares behind the scenes.

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“This approach would enable us to reduce the surcharge should fuel prices fall over time.”

But when oil prices slumped to $35, the extra charge remained but was rebranded. Both BA and Virgin Atlantic have a “carrier imposed surcharge” of this kind.

Does this have any effect on the price I pay?

For most passengers, not directly. The name and scale of the charge has no particular significance: airlines are required to quote fares inclusive of fees, taxes and surcharges. If, as seems likely, airlines increase their “carrier imposed surcharges”, you wouldn’t see fares to, say, New York suddenly rising by £50. On most routes, competition decides the price level.

So who does it affect?

The people who are particularly susceptible to surcharges are frequent flyers redeeming points for “free” flights. They are expected to pay not just government taxes such as Air Passenger Duty, and airport fees, but also these “carrier imposed surcharges”. Currently on British Airways that amounts to £105 for a one-way flight to the US.

These surcharges diminish the difference between frequent-flyer reward flights and ordinary commercial fares – making loyalty schemes rather less appealing, and effectively devaluing the accrued miles.

Will fares and holiday prices rise generally as a result of the oil surge?

Almost certainly. But that won’t be because airline X, cruise line Y or package holiday company Z has a specific fuel surcharge: it will be because firms keep a lid on supply, with prices inevitably rising, in order to make their operations viable.


www.independent.co.uk

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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