A 34% fall in the oil price since November has brought no relief to travellers. In fact, South African travel agents told Tourism Update’s sister publication, TNW, that although oil is at an all-time low, fuel surcharges have increased during this period.
One agent said the oil price was predicted to become cheaper than water. “Even with a terrible rand, fuel surcharges shouldn’t be so high.”
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Although agents acknowledge that airlines are faced with a crippling rate of exchange, most are left wondering why the airlines decide to ‘hide’ this cost in a surcharge instead of increasing the base fare.
“The airlines are the ones bleating about transparency – going mad when agents find a way to charge a service fee ‘hidden’ in the ticket price – but then they [the airlines] hide their own increases in the fuel levy. That is such double-standard, underhand behaviour,” another agent said.
Internationally, the practice of reducing airfares and increasing surcharges is also receiving attention. Paul Hudson, President of FlyersRights, a US-based non-profit consumer organisation representing airline travellers, said that base fares had become a smaller portion of the overall airfare over the past few years. He says there is a lack of legal definition of what an airfare should include.
Airlines continue to cite the rate of exchange in South Africa as the reason that fuel surcharges remain high. They argue that the volatility of our currency also necessitates surcharges outside of the base fare.
Approximately 50% of South African airlines’ costs are in dollars (including fuel) and the impact of rand volatility is therefore significant, says Erik Venter, Comair CEO. “Fortunately the recent collapse of the rand has been partly offset by the decline in the price of oil but the decline in operating costs seen in the US and Europe has not been realised in South Africa.”
According to Rodger Foster, CEO and MD of SA Airlink, carrier-imposed surcharges are hedging mechanisms to mitigate currency and fuel price fluctuations. “It is true that airlines could increase their fares in rands and do away with carrier-imposed surcharges, but this is impracticable given the volatility of our currency.”
Kirby Gordon, VP Sales and Distribution for FlySafair, says even if hedging measures are in place, they cannot always outlive a sustained and rapid deterioration of the currency.”
Aviation specialist, Christopher Elliott, argues, however, that part of the reason for a low base fare is that airlines want to offer the lowest fare possible. “They would advertise a zero fare if they could, because customers book them, even when fees and taxes are later added on to the final cost.” He says although airlines are legally required to advertise the full fare, somehow passengers are still drawn to the ‘low’ base fare.
But Foster maintains airfare pricing is not that simple and the ultimate determinant of how much the carrier can sell the seat for (and therefore how low the base fare needs to be dropped) is what the customer is willing to pay, and the customer is spoiled for choice in a domestic open skies environment and with the current oversupply of airlift capacity.
Fare increases are not out of the question yet either, according to Hein Kaiser, spokesperson for Mango. “At this time, fare increases are somewhat mitigated by a much lower fuel price but should the currency weaken more it may impact future travel costs.”
