Is My Airline Overcharging Me For Fuel?

After hours spent searching the internet you’ve found the cheapest air ticket to a far away escape. It’s the quickest route, the carrier has good reviews, and if you’re really lucky there will be onboard WiFi (if only in name).

The confirmation email arrives. You can feel the warm air of your destination as you open it. Line-by-line you read the emails seemingly endless breakdown of costs that go into the total price paid for the ticket.

Taxes, duty, surcharges… passenger facility charges.

And for just a second all excitement is lost as you remember mathematics lessons from teenage years.

There is much debate around the wording and inclusion of such a long list of additional charges. For most consumers they are a non-issue, because they’re part of the overall fare

One of the line items that most intrigues me is the Fuel Surcharge — something most people incorrectly confuse as the actual cost of fuel.

“A fuel surcharge is a way of adjusting the amount paid to move freight [persons] by taking into account significant variation in fuel prices, compared to historical levels. It is a method for sharing or transferring risk.”
http://www.supplychain247.com/

Whilst a Fuel Surcharge is designed to cover the fuel cost of flying you to your destination, it is not the actual fuel cost.

If you think about this more deeply, charging an actual fuel cost would be impossible due to fluctuations in fuel price paid by the airline. Aircraft fuel has fallen by over 60% in the last two years alone.

Jet Fuel Price Movement 2011 - 2016
source: http://www.indexmundi.com/commodities/?commodity=jet-fuel&months=60

Does this mean I am being overcharged?

After recently booking a trip from London (LHR) to Bangkok (BKK) via Doha (DOH) I decided to examine the difference between the Fuel Surcharge charged for my ticket, and the estimated actual fuel cost of the journey.

Ticket taxes and carrier imposed fees (round-trip)

Charge  GBP_300116 USD_300116
Fuel Surcharge (YQAC) 158 230.68
Fiscal Tax (YRVB) 5.6 8.18
Air Passenger Duty (GBAD) 71 103.66
Passenger Service Charge (Embarkation) (UBAS) 41.65 60.81
Passenger Service Charge (PZSE) 0.6 0.88
0.7 1.02
0.7 1.02
Passenger Service Charge (Domestic) (TSLA) 13.2 19.27

Aircraft fuel estimation

My journey consists of two legs:

Departure Arrival Aircraft Miles Nautical Miles
LHR DOH Boeing 787-8 Dreamliner 3259 2832
DOH BKK Airbus A380-800 3288 2857

To obtain the additional data required I turned to:

  • Wikipedia: average fuel efficiency for both these aircrafts, and many more.
  • IATA: jet fuel costs.

View and clone the datasets on GDocs here.

I was charged $230.68 USD in Fuel Surcharges for this route which includes return flights. Whilst the estimated actual fuel costs are as follows:

Gallons Needed p/Pax Gallons Needed Total Fuel Cost (USD) p/Pax Fuel Cost (USD) Total
Boeing 787-8 37.03 8,814.11 37.44 8,718.21
Airbus A380 45.26 23,763.54 45.76 23,504.99
One-way 82.30 Gal 32,577.66 Gal $83.20 $32,223.20
Round-trip 164.60 Gal 65,155.31 Gal $166.41 $64.446.40

What I learned

My ticket was booked within 3 weeks of outbound travel (7 weeks of return travel). Given a Fuel Surcharge “takes into account significant variation in fuel prices”, I would have expected the estimated actual fuel cost to vary slightly given the current market conditions.

According to my calculations I am being overcharged for fuel by $64.27 USD ($230.68 -$166.41) — if we consider a Fuel Surcharge is only fuel cost.

Assuming perfect conditions, that is all passengers on the plane were charged the same Fuel Surcharge, this would be a combined overpayment of at least $15,000 USD ($64.27*238 seats on 787-8) — about 25% of fuel cost required to make the entire round-trip.

One of the most likely causes for overpayment is that airlines factor in high historic oil prices to Fuel Surcharge calculations, because most airlines hedge fuel purchases (although a potentially weakening argument).

If this is correct, 2017 could offer even cheaper airfares! Did I choose the wrong year to travel?

Other important notes on analysis: This analysis assumes the figures supplied by the aircraft manufacturer with flights operating at 100% capacity. There are also thousands of factors that affect actual fuel economy: payload weight, weather conditions, delays, airport charges to refuel, required additional fuel for safety regulations, etc.

tl;dr

Your airline is probably overcharging you for fuel (if we assume a Fuel Surcharge is only fuel cost).

Figures updated 07/02/2016 12:20 GMT: Fuel Surcharge quoted is for a return journey. Originally I calculated Fuel Surcharge for round-trip against one-way fuel costs.