Airline Mischaracterization of Fuel Surcharges: British Airways

Misrepresentation of Fuel Surcharges in Airline Price Advertising - Benjamin Edelman and Xiaoxiao Wu

Fuel surcharges are imposed by air carriers of their own volition, not required by any government, regulator, airline, or similar authority. British Airways has set fuel surcharges of amounts impermissible under DOT rules, has failed to disclose these surcharges in the manner required by DOT and, for certain around-the-world tickets has misrepresented fuel surcharges as "tax."

 

British Airways Fuel Surcharges Do Not Represent a Reasonable Estimate of Per-Passenger Fuel Costs Above Any Plausible Baseline

The Department of Transportation has set rules as to the permissible amount of fuel surcharges. The DOT's Additional Guidance on Airfare/Air Tour Price Advertisements instructs:

When a cost component is described as a fuel surcharge … that amount must actually reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier above some baseline calculated based on such factors as the length of the trip, varying costs of fuel, and number of flight segments involved.

The DOT requires airlines to accompany any such fuel surcharge disclosure with an explanation of the method of calculation:

For example, descriptions such as the following would be acceptable: ‘Fare includes a fuel surcharge. On average our passengers paid $xx.xx more for fuel during 2011 in their ticket price than they did in 2000;' or ‘Fares include a charge for fuel. On average in 2011 our passengers paid $xx.xx for fuel as a part of their ticket price.' Of course, such assertions must be based on the carrier's actual paid enplanements and fuel expenditures.

In May 2012, Edelman booked BA OnBusiness award travel from Singapore to Boston. At that time, BA quoted "fuel surcharge" of $521 for first class travel SIN-LHR-BOS. See attachments 1 and 2 to Edelman's DOT complaint of February 4, 2013, showing BA quotes as of May 30, 2012.

Current BA fuel surcharges for BOS-LHR are $229 per person each way (for coach and World Traveler Plus) and $414 each way (for Business Class and First Class). See attachments 3 and 4 to Edelman's DOT complaint of February 4, 2013, showing BA quotes as of January 12, 2013.

To the best of our knowledge, these amounts are not a reasonable estimate of the per-passenger fuel cost incurred by British Airways above any reasonable baseline. While fuel prices are high, they are stable and have not been increasing significantly over recent years. See attachment 5 to Edelman's DOT complaint of February 4, 2013, taken from the IATA Economics web site, showing stable fuel prices over the past two years, and prices consistently well below the peak of 2008.

 

British Airways Fuel Surcharges Are Implausibly High Vis-à-vis Ordinary Paid Tickets

For further evidence that BA fuel surcharges are not a reasonable estimate of per-passenger fuel costs above a baseline, we checked ordinary paid bookings on BA flights. We quickly found instances in which the BA "fuel surcharge" exceeded 70% of the total cost of an ordinary paid ticket. For example, on January 20, 2013, we used the BA web site to quote an ordinary paid coach ticket for BOS-LHR-BOS at $640 plus government taxes of $218.85. See attachment 6 to Edelman's DOT complaint of February 4, 2013. In contrast, when we asked to redeem points for the same flights on the same dates, the BA Executive Club and OnBusiness redemption tools noted the required points plus $458 of British Airways fuel surcharge and government taxes of $218.85. See attachment 7.

It is not plausible that $458/$640=71.5% of total airfare is fuel cost above a baseline. This confirms that the British Airways "fuel surcharge" does not reflect a reasonable estimate of per-passenger fuel costs above a baseline.

 

British Airways Fuel Surcharges Appear to Exceed BA’s Actual Cost of Fuel

As best we can determine from publicly-available sources, BA fuel surcharges currently exceed BA's actual cost of fuel. To make this calculation, we checked capacity, fuel surcharges, and fuel consumption on BOS-LHR and LHR-LAX. This combination of routes offers both transatlantic directions, BA's two prevailing equipment types, and a mix of shorter and longer transatlantic routes. The table below summarizes our calculations:

  BOS-LHR (777 service) LHR-LAX (747 service)
Fuel surcharge revenue    
Passengers    
  First Class 16 * $414 = $6,624 14 * $452 = $6,328
  Club 48 * $414 = $19,872 52 * $452 = $23,504
  World Traveler Plus 40 * $229 = $9,160 36 * $229 = $8,244
  World Traveler 122 * $229 = $27,938 243 * $229 = $55,647
Total passenger fuel surcharge $63,594 $93,723
Cargo    
  Capacity 35,000 kg 34,000 kg
  Fuel surcharge $1.16/kg    $1.16/kg    
Total cargo fuel surcharge $40,600 $39,440
Total fuel surcharge revenue $104,194 $133,163
 

Fuel expense    
Scheduled travel time 6:20 10:10
Fuel consumption per hour 7,600 liters/hour 12,788 liters/hour
Price of jet fuel $0.766/liter $0.766/liter
Total fuel expense $36,870 $99,589

Notice that total fuel surcharge revenue for these routes is $104,194 and $133,163, respectively. In contrast, total fuel expense is less, specifically $36,870 and $99,589. This indicates that fuel surcharge revenue appears to exceed BA's actual cost of fuel, not to mention fuel cost increase above a baseline.

BA may argue that our fuel surcharge revenue estimates should be adjusted in light of the passenger and cargo load factors. We have not fully evaluated that argument. But even that adjustment would not alter the conclusion that BA's fuel surcharges are not a reasonable estimate of increased fuel costs above a baseline. Specifically, BA parent IAG publicly reports its transatlantic passenger load factor as 83.7% and its systemwide cargo load factor as 73.9%. After these adjustments, fuel surcharge revenue would be $83,231 and $107,592, respectively – still exceeding fuel expense, not to mention fuel cost increase above a baseline. Note that lower passenger load would increase cargo capacity, a factor we have not considered in this analysis.

Sources:

Passenger capacity: BA web site - First, Club, World Traveler Plus, World Traveler

Passenger load factor:  IAG December 2012 Group Traffic and Capacity Statistics - at heading Passenger Load Factor % - North America - Year To Date 2012

Cargo capacity calculation: Cargo Capacity = Payload – Passenger Weight = (Zero Fuel Weight – Operating Weight) – (Passenger Capacity * Weight Per Passenger)

Operating weight and zero fuel weight obtained from Boeing 777 and Boeing 747 Airplane Characteristics specifications for the equipment types, engine types, and maximum ratings BA operates (as listed on the BA pages noted in the fuel consumption sources, below). Passenger weight calculated at 95kg per passenger, times 100% passenger load in all cabins. Cargo capacity rounded down to the next 1000kg. We also confirmed that payload plus zero fuel weight plus required fuel would not exceed max takeoff weight.

Cargo surcharge amount: British Airways World Cargo - Fuel Surcharge - Current Fuel Surcharge

Travel times: SABRE (reporting scheduled times, not flight times)

Fuel consumption:  British AIrways web site - Boeing 777 and 747 (both pages as preserved by the Internet Archive)

Fuel cost: Bureau of Transportation Statistics - Research and Innovative Technology Adminstration - Airline Fuel Cost and Consumption - 2012 YTD figures

 

British Airways Fuel Surcharges Are Not Supported with Required Calculations

The DOT requires that airlines substantiate fuel surcharges with statements supporting the surcharge amounts. Specifically, the DOT instructs:

For example, descriptions such as the following would be acceptable: ‘Fare includes a fuel surcharge. On average our passengers paid $xx.xx more for fuel during 2011 in their ticket price than they did in 2000;' or ‘Fares include a charge for fuel. On average in 2011 our passengers paid $xx.xx for fuel as a part of their ticket price.

To the best of our knowledge, BA has never provided any such substantiation. For example, when BA quotes a ticket that includes a fuel surcharge, BA generally labels the fuel surcharge as such, but BA never provides the sort of calculation specified in the DOT notice.

Nor are details easily available from BA staff. Indeed, when Edelman wrote to British Airways customer service (via the BA web site) seeking information about the calculation of fuel surcharges, he was referred to telephone staff. (See Edelman's February 4, 2013 complaint to DOT, attachment 8.) Edelman called BA telephone reservations staff but was unable to obtain any information on this subject.

 

BA OnBusiness Points Table Does Not Disclose Carrier-Imposed Surcharges

The BA OnBusiness award table fails to disclose surcharges in the way required by DOT regulation - mentioning the fees only in a footnote (not in the table body), and even there withut the range or wording the DOT requires.The DOT's Guidance on the Use of the Term ‘Free' in Air Fare Advertisements and Disclosure of Consumer Costs in Award Travel requires that surcharges be disclosed prominently:

If there are government fees or taxes or mandatory carrier charges such as processing fees that must be paid by consumers in frequent-flyer awards programs, then the respective amounts or a range of those amounts must be shown on carrier websites together with the mileage award levels. They must, moreover, be given the same prominence as the mileage award requirements.

In sharp contrast to the DOT's requirements, the OnBusiness Reward Flight Points Page lists points required for various awards without putting fuel surcharges in equal prominence. The body of the table says nothing about any surcharges. Rather, a tiny footnote marker directs a user to a note mentioning only "taxes, fees, charges, and security charges." This footnote suffers multiple deficiencies vis-à-vis DOT requirements: 1) The small type at the far bottom of the lengthy page does not have "the same prominence" as the full-size points requirements present throughout the page. 2) The footnote mentions "fees" and "charges" but says nothing of "carrier-imposed fuel surcharges" (BA's own characterization of the amounts at issue). 3) The footnote does not indicate the amounts or range of amounts that may apply.

False Statements in Around-the-World Fare Quotes

BA advertises around-the-world air travel via rtw.oneworld.com. This tool systematically mischaracterizes carrier-imposed surcharges as "tax." These amounts can be substantial – regularly more than $1000 on a single ticket, and we believe in some instances more than $2000.

We have quoted a variety of around-the-world tickets using this tool. For example, on January 20, 2013, Edelman quoted a coach ticket JFK-LHR-DXB-LHR-ARN-LHR-HKG-SIN-NRT-HKG-YVR with the first five segments on BA. Taxes were quoted at $1,191.24 USD. See first screenshot below. Clicking the "Proceed" button yielded the lengthy itinerary and fare quote shown in the second screenshot below, reiterating the $1,191.24 quote of "Taxes." There, the word "Taxes" appeared as a hyperlink. Clicking this link yielded the itemization in the third screenshot. The top two lines of that itemization report "Surcharge" of $579 and "Multiple surcharges" of $367 -- labels potentially alerting a consumer that these are not actually "taxes" (despite prior statements), but then the bottom "total" line reiterates the (false) claim that are all in fact "taxes".

AA falsely claims the trip price includes 'Taxes' of $1222.16 In this second stage of the purchase proces, AA again falsely claims the trip price includes AA itemizes the supposed 'taxes', which turn out to include three large carrier-imposed surcharges.  The second and third are described as 'surcharge' (which some consumers might recognize as distinct from a bona fide tax), but the first is again falsely described as 'tax'

As best we can tell, there are no actual government taxes totaling the $1,191.24 "tax" charged on this itinerary. Rather, we believe the majority of the $1,191.24 "tax" – specifically, the $579 and $367 later characterized as "surcharge" – are actually carrier-imposed surcharges. Thus, 79.4% of the $1,191.24 "tax" is not actually tax but rather carrier-imposed surcharge unlawfully disguised as "tax".

Crucially, the initial disclosures (as shown in the first and second screenshots) mischaracterize the amounts at issue as "taxes", not "taxes and surcharges" or the like. Moreover, every user using this booking tool must see the first two screens; in contrast, the information in the third is shown only if users specifically click the "Taxes" hyperlink to view details. Thus, even though the third describes the surcharges within a page entitled "taxes and surcharges information" (potentialy admitting that some of the charge are not taxes), most users are unlikely to see this screen. Moreover, the "and surcharges" label appears only in HTML title, not in page text – insufficiently prominent to cure the false statements made previously. Indeed, at the same time that the "taxes and surcharges" label appears at the top of the page (indicating that some of the listed charges are "surcharges" rather than taxes), the wording "TaxBreakdownPopUp" appears immediately below (in the popup's URL bar) (indicating that everything in the listing is a "tax"). Finally, even on the most favorable view, the statements in the third screenshot still fall short of applicable DOT rules: Note the absence of the crucial words "carrier-imposed" as well as the failure to include statements substantiating the surcharge amounts ("On average our passengers paid…" or similar). These omissions are in sharp contrast to the requirements of the DOT's Additional Guidance on Airfare/Air Tour Price Advertisements.

 

Edelman's Complaints to BA and the Department of Transportation

Edelman complaint to DOT - February 4, 2013 - re British Airways Edelman attempted to alert British Airways to these violations and obtain a refund of amounts unlawfully charged to him. He sent substantially the same material presented above (with the exclusion of the Around-the-World section) to BA Customer Relations by fax on June 7, 2012, then again on July 23, 2012. On November 8, 2012, he escalated this matter to Richard Mendles, BA General Counsel, Americas. Mr. Mendles replied in an email of November 14, 2012 to confirm receipt. Despite two further messages seeking a response in substance, Mr. Mendles has offered no substantive reply. Thus, British Airways has failed to reply in substance despite the passage of more than seven months since we first brought these matters to its attention.

Edelman's February 4, 2013 complaint to the Department of Transportation provides further evidence of additional and ongoing price advertising violations by British Airways. He concludes that complaint with the following request to DOT:

I ask that the Department of Transportation:

(1) Exercise its authority under 49 USC 41712 to open an investigation of British Airways for having engaged in, and continuing to engage in, the unfair or deceptive practices described above;

(2) Order British Airways to refund to ticket purchasers all monies represented to ticket purchasers as "taxes" or government-imposed fees, but not actually remitted to governments, and all “fuel surcharges” impermissible under the law or regulation applicable as of the date of purchase of the corresponding tickets;

(3) Impose appropriate civil penalties on British Airways;

(4) Refer this matter to appropriate US and foreign tax collection agencies for investigation of possible tax fraud or other violations of tax law in non-payment to governments of monies collected as “taxes” or government-imposed fees; and

(5) Issue any guidance or revised regulations needed to clarify to other airlines and ticket agents, and to preclude any future claim of ambiguity, that these practices are unfair and deceptive in violation of 49 USC 41712.

Regulations.gov has docketed Edelman's complaint. Anyone wishing to comment may do so via that link.

Subsequent briefing in this matter: British Airways filed an Answer (April 5, 2013). Edelman filed a reply (April 19, 2013) and BA filed a surreply (May 3, 2013).