On Taxes, Service Fees and Surcharges

It seems to me that lately companies are turning to fees and surcharges, rather than increasing rates/fares much more than they used to. Back in 2000/2001 there was a power “shortage” and some hotels in California and other places started tacking an electricity surcharge on to their hotel bills. It was something like $3/night, and they didn’t mention it until checkout. They caught a lot of bad press for it, but ultimately they collected a lot of extra revenue this way, rather than just raising room rates by $3/night. Even phone companies do it these days, with my personal favorite, the “Regulatory Cost Recovery Charge.” In other words, they have a surcharge for the “cost” of collecting all the other fees and taxes.

For airlines, the biggest culprit has been the AY (or YQ) Fuel Surcharge fee that is charged on many itineraries. While US law prohibits this fee from being added in addition to the base fare, such is not the case in most foreign countries. In many cases the Fuel Surcharge can be $120 or more on a ticket. Actually flying to the UK in low season can often be a $200 base fare and >$200 in taxes, fees and surcharges on the ticket.

It turns out that, much like all the other pricing actions that airlines engage in, some of these fuel surcharges were actually the result of collusion, not just airlines deciding on their own to raise fees. The US Department of Justice and British Office of Fair Trade have just fined British Airways $350MM and $250MM, respectively, based on their collusion with Virgin Atlantic on fixing the fuel surcharge fees on TATL flights from the UK. Virgin Atlantic managed to escape un-fined by cooperating with authorities, which means that they get to keep the ~$600MM that they raked in on these extra fees while their rival, BA, has to give the money back to the government. And all the while the passengers still got screwed.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.