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What Do Carrier Imposed Fees pay For?

by John Webber

Airlines around the world are using mysterious fees to boost its income. These “Carrier Imposed Fees” or surcharges can amount to hundreds of dollars on an international flight. Major US airlines such as American, Delta, and United won’t reveal what these fees actually pay for. One analyst referred to these fees as an “indirect price hike.”

Since 2014, airlines in the US have been flush with cash in an unprecedented manner. These past four years have been the most profitable in US aviation history. While disciplined management and more nimble business strategies have certainly helped, it’s the more than 50% fall in gas oil fuel prices between mid-2014 and early 2015 that really kicked profits into high gear.

As you may have noticed during your last trip to the gas station that a fill-up has gotten a lot more expensive. That’s because the price of crude oil has skyrocketed 57% over the past 12 months.

And if you’re concerned by this, you aren’t alone. Airlines have noticed as well. “For the nine publicly traded U.S. passenger airlines, earnings for the industry peaked in 2015 but have fallen every year since, due to expenses – including mostly rising fuel costs — outpacing revenues,” Airlines For America or A4A — an industry trade group whose members include American, Alaska, JetBlue, Southwest, Hawaiian, and United — said in a statement.

That means there’s now an ever-growing need to find additional profitability as costs rise. “The airlines, for better or for worse, are much more responsive to investor pressure and investors are as aggressive as ever in wanting to see strong profit margins,” said Vinay Bhaskara, a senior business analyst for trade publication Airways.

And raising fare prices is one way to go about that. American Airlines CEO Doug Parker told the attendees of an annual meeting of aviation industry luminaries in June to expect higher tickets prices as carriers move to save money. Norwegian Air’s Chief Commercial Officer Thomas Ramdahl told us last month that his company has already raised prices.

But base airfares can only go up so much – do take note that the carriers only pay taxes on air fares and not on fees. So for airlines, one way to squeeze more revenue out of a passenger is through additional fees or the increasing of such fees – all of which are somewhat mysterious but quite pricey for us travelers. Do note that Fuel Surcharges are now outlawed on USA domestic routes. What used to be called Fuel Surcharges (in the amounts of at least $25 each way domestic and $150 to $250 each way on international flights) due to the high oil prices years ago was phased out and replaced by and are now called “Carrier Imposed Fees”.

These fees, which are employed by airlines around the world, are especially complex and egregious on international flights. Here’s are some examples.

– For a $1,739 round-trip flight on American Airlines between Dallas Fort Worth International and London Heathrow, we found on July 2, only $1,195 of it is the actual airfare. The other $544 is made up of various taxes and fees imposed by the US and UK governments as well as the airline. These include a $36.60 transportation tax, a $5.60 security fee, and $7.00 federal inspection fee courtesy of the US government.

– We also found a $1,557 round-trip flight between New York and London on Delta that listed its base airfare at just $1,012 with a $320 “carrier-imposed international surcharge” and another $225 in other taxes and fees.

While most other taxes and surcharges end up in government coffers, the “carrier-imposed fees,” as the name would suggest, goes directly into the airlines’ bank accounts. And no one outside of the individual airline really knows what it actually pays for. And although TSA and airport security is also made out as the face of these fees and surcharges, the TSA/Department of Homeland Security only gets a miniscule proportion of the fees – called the Passenger Security Fees which is $5.60 for each leg of your trip. The city where your airport is based charges a fee called the Passenger Facility Charge/PFC which can cost anywhere from $4 to $18 per each airport you land and take off from – it basically pays for airport upkeep; and is still not much compared to the ambiguous carrier imposed fees the airlines charge.

American Airlines declined to provide us with any information about the makeup of these fees. However, the Fort Worth, Texas-based carrier did tell us in 2016 that it’s a “wide-ranging fee” and is used to “collect money for a lot of different things.”

Delta Airlines also declined to go into or give a breakdown of what these fees entail. In a statement, the Atlanta-based carrier, whose website explains that its Carrier-Imposed Fees for international flights can be as high as $650 each way, said;

“Delta always displays the all-in price for booking a flight – from the time customers start exploring fares until they confirm their ticket – which includes the base fare, any applicable surcharges and government taxes and fees. Surcharges may be driven by competitive factors in the marketplace, which differ in the U.S., Europe and all around the globe.”

– One glaring example of how much fees are padded into the ticket price is; we looked at a trip from LAX to London roundtrip on American for this low season wintry December. The price of the ticket costs $786.80 (It could even be as low as $575 roundtrip in the dead of winter with $50 of that being the airfare) – of which the airfare is only $241, the US federal taxes are $36.60, PFC and security fees & other UK taxes are $159.20, with the remaining $320.00 as carrier imposed fees.

So finally, we reached out to United Airlines and it also decided to shy away from giving us breakdown details. “We typically do not discuss pricing or fare strategy for competitive reasons,” United told us in an email. “We continuously monitor supply and demand in markets we serve and determine competitive offerings that meet the needs of our customers.”

However, industry observers have a few ideas of their own. Prominent travel industry analyst Henry Harteveldt went as far as calling these carrier-imposed fees an “indirect price hike.” According to Harteveldt, these surcharges when bundled and added together with other extra fees like seat selection and early boarding can account for more than 15% of an airline’s income. “These fees represent a disproportionate share of airline profitability,” Harteveldt added. “Without these fees, most airlines won’t be able to report gross profits, let alone net profits.”

The trade group A4A defended the imposition of these airline fees. “To the extent that fees or other surcharges help airlines generate more revenues or avoid costs for services that some passengers may not value, they help overcome an economic climate in which costs are rising steadily, as they are today,” the group said in a statement. “That also helps airlines and their customers avoid or minimize cuts in service or staffing.”

Sadly, the reality is that there isn’t a whole lot we can do about these “carrier imposed fees” other than not buying an airplane ticket. “It is a free market,” Harteveldt said. “Airlines have figured out the right balance of cutting back on flights and discontinuing routes thereby ending up in jampacked airplanes, more seats per plane meaning less legroom – all still ends up in people still flying; hence they can charge anything they want.”

“Do not go where the path leads, travel instead where there is no path and leave a trail.”   @wbbrjp / Phone   213 387-4345 / 3407 W 6th Street, Los Angeles CA

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