With Oil Prices So Low, What's That Fuel Surcharge For, Exactly?

Feb 3, 2015
Originally published on February 3, 2015 11:27 am

When oil prices shot up a few years ago, many transportation and delivery businesses started adding fuel surcharges to their prices.

Now, fuel prices are plunging, but lots of those surcharges still linger, and consumer advocates are crying foul.

The drop in the cost of oil is a huge factor in the airline industry, where 30 percent of all expenses are for fuel. But airlines, along with other industries with large fuel expenses, have been slow to respond with lower prices.

Jean Medina, a spokesperson for Airlines for America, a group that lobbies for major cargo and passenger airlines, says carriers are still adding surcharges — but only on international flights. Each carrier determines what fees to tack on, and they can use those additional revenues to cover any expenses — not just fuel.

"While airlines are reporting profits, it's modest," Medina says. "While fuel has come down, other costs have been increasing — costs of labor, cost of aircraft rent, cost of buying new planes."

Travelers United, a group that represents passengers, has sent a letter to airlines asking them to lower airfares. Chairman Charlie Leocha says airlines slapped on surcharges when prices were high, but never explained the rules for lowering them.

"It seems to have absolutely no connection with reality. It's just a random fee the airlines vary as they want to," he says.

Leocha blames recent major airline mergers and less competition for the slow response to the nearly 50 percent drop in the price of jet fuel.

Fees That Pay For More Than Fuel

But airlines aren't alone in being slow to respond. FedEx Ground raised its fuel surcharges Monday. And if you order a pizza or send a package or flowers, chances are you will still be paying surcharges.

"Delivery charges are meant to offset far more than just fuel prices," says Tim McIntyre, a communications executive with Domino's Pizza. Everything from uniforms to the bags that keep the pizza warm are part of the delivery equation, he says.

And franchises are free to drop the fuel surcharge if they want, he adds. "They should pay attention to the fees charged by their local competition and to make the best decision for their businesses," McIntyre says.

Thomas Smith, an economist at Emory University, says businesses can be slow to adjust to drops in volatile energy prices.

"When prices go down, you still want to hedge against the possibility that going forward, they might go up again," he says. "It's a lot harder to drop prices than it is to increase them."

'Aggravating' For Customers

But not all businesses are free to hang onto surcharges — just ask Atlanta's cab drivers. They used to charge a $2 fuel fee, but once the price of gas dropped below $2.90, city law required that the surcharge be lifted.

A driver who gave his name as Wondimu, waiting for customers at Hartsfield-Jackson international airport, says he's kind of glad it's gone. "It was not really helping us. When we tell them this is fuel charges, it's surcharge, it's aggravating the customers."

Many economists predict that worries about aggravated customers will force other businesses to soon follow suit. Virgin Australia Airlines has — it announced last month that it will drop its fuel surcharges for flights to the U.S.

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DAVID GREENE, HOST:

When oil prices shot up a few years ago, many transportation and delivery companies added fuel surcharges to pass some of the cost to customers. Well, oil prices are now plunging. You wouldn't be wrong to think those fuel charges might go away. They haven't. In fact, FedEx Ground raised them yesterday. Susanna Capelouto, from member station WABE in Atlanta, reports.

SUSANNA CAPELOUTO, BYLINE: It's a cold morning at Atlanta's International Airport, but Jeremy Strickler has a big smile.

JEREMY STRICKLER: We're flying to Jamaica.

CAPELOUTO: He's looking forward to a week of sun and fun. But he had to pay $400 for his flight to a Caribbean country, and a third of his fare went to taxes and fees.

STRICKLER: Ticket prices are still high. You would think they would come down. They probably will in time, but the airlines are making money now.

JEAN MEDINA: While airlines are reporting profits, it's modest.

CAPELOUTO: Jean Medina is with Airlines for America, a group that lobbies for major cargo and passenger airlines. She says carriers are still adding surcharges, but only on international flights. Each carrier determines what fee to tack on, and they can use those additional revenues to cover any expenses, not just fuel.

MEDINA: While fuel has come down, other costs have been increasing - cost of labor, cost of aircraft rent, cost of buying new planes.

CAPELOUTO: Still, the plunge in oil is a huge factor in an industry where 30 percent of all expenses are for fuel. For example, American Airlines predicts it will save $5 billion this year, so consumer advocates are crying foul. Travelers United is a group representing passengers. It has sent a letter to airlines asking them to lower airfares. Chairman Charlie Leocha says airlines slapped on surcharges when prices were high, but never explained the rules for lowering them.

CHARLIE LEOCHA: It seems to have absolutely no connection with reality. It's just a random fee that the airlines vary as they want to.

CAPELOUTO: Leocha blames recent major airline mergers and less competition for the slow response to the nearly 50 percent jet fuel price drop, but airlines aren't alone in being slow to respond. If you send a package, flowers or order a pizza, chances are you will still be paying surcharges.

TIM MCINTYRE: Delivery charges are meant to offset far more than just fuel prices.

CAPELOUTO: Tim McIntyre is with Domino's Pizza. He says everything from the uniforms to the bags that keep the pizza warm is part of the delivery equation. He says franchises are free to drop the fuel surcharge if they want.

MCINTYRE: They should pay attention to the fees charged by their local competition and to make the best decision for their businesses.

CAPELOUTO: Tom Smith, an economist at Emory University, says businesses can be slow to adjust to drops in volatile energy prices.

TOM SMITH: When prices go down, you still want to hedge against the possibility that going forward they might go up again. And so it's a lot harder to drop prices than it is to increase them.

CAPELOUTO: But not all businesses are free to hang onto surcharges. Ask Atlanta's cabdrivers.

WONDIMU: They have to come down now.

CAPELOUTO: A driver who gave his name as Wondimu is waiting for customers at the Atlanta airport. He used to charge a $2 fuel fee, but once the price of gas dropped below $2.90, city law says no more surcharge. He's kind of glad it's gone.

WONDIMU: It was not really helping us. When we tell them this is fuel charges, it's surcharge, it's aggravating the customers, too.

CAPELOUTO: Many economists predict that soon worries about aggravated customers will force other businesses to follow suit. In recent days, Virgin Australian Airlines announced it will drop its fuel surcharges for flights to the U.S. For NPR News, I'm Susanna Capelouto in Atlanta. Transcript provided by NPR, Copyright NPR.