British Airways in court in the US over fuel surcharges on Avios tickets

An interesting court case is currently working its way through the US legal system. Four frequent flyers in the States are suing British Airways over the fairness (or not) of the fuel surcharges imposed on Avios reward tickets and corporate net fares.

The latest attempt by British Airways to have the case thrown out has just failed, and it will proceed to the next stage.

See this Reuters story here for more details.

To quote:

In a decision made public on Friday, U.S. District Judge Raymond Dearie in Brooklyn, New York, said the plaintiffs offered sufficient support for their claims that the surcharges were not “reasonably related to or based upon” fuel costs. He did not rule on the merits of the case …..

The plaintiffs said British Airways saw the fuel surcharges as a means to boost revenue, and charge frequent flyers hundreds of dollars on each “free” reward ticket.

In letting the case proceed, Dearie cited a statistical analysis from the flyers that suggested that British Airways’ fuel surcharges from 2007 to 2012 “bore little relationship to – and were not based upon – changes in the price of fuel.”

There are a couple of points worth mentioning here. The first is that, for reasons unknown, British Airways charges higher fuel surcharges – substantially higher, in fact – for round-trip tickets which start in the US compared with the UK.

Heathrow to New York return in Club World has total taxes of £533. New York to Heathrow return has total taxes of £732. That won’t look good in court.

Secondly, I will leave you with this bit of data courtesy of my friend Andy.

Cost of fuelling a BA A380 to Los Angeles, return: $170,000 (figure comes directly from a BA pilot)

First Class fuel charge revenue: 14 x £359 = £5,026

Club World fuel charge revenue: 97 x £359 = £34,823

World Traveller Plus fuel charge revenue: 55 x £239 = £13,145

World Traveller fuel charge revenue: 303 x £239 = £72,417

Total fuel surcharge collected on a full A380 flight to Los Angeles: £125,411 = c $200,000

‘Profit’ generated by fuel surcharge vs the cost of fuel: c $30,000

The full court filings in the case can be downloaded from Loyalty Lobby here.

It is not clear where this case will end up – the worst case scenario, for BA, is that it is made to refund fuel surcharges to anyone who has flown to or from the US in recent years on an Avios ticket or corporate net fare (to which fuel surcharges are additional).

This would not be unparalleled – similar refunds were made a few years (I got one myself) when BA settled another court case.

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Comments

  1. I’m showing my ignorance here but were fuel surcharges not introduced to cover the rapid rise in fuel. They werent meant to cover the whole cost of the fuel, simply the cost above a certian level and therefore should drop if fuel prices dropped. They should be part of the price of the ticket and not used to generate excessive profits like credit card charges. The US courts will come down heavily on the differential prices and manipulation

    • This is exactly my opinion. Every 6 months, BA files new fully-flex fares with IATA. A fuel surcharge should therefore only cover any increase in price since the last 6-month reset. It is illogical to run a permanent ‘fuel surcharge’.

      You don’t, after all, still see shops adding a 2.5% VAT surcharge at the till because they are still pricing goods on the shelves based on the 17.5% VAT rate which was increased in January 2011. Some shops surcharged for a few weeks, and then readjusted their pricing accordingly.

      • Mr Bridge says:

        The way I see it, any use of the word ‘surcharge’ is just bad business.
        I think I am right in saying BA hedge their fuel any way.
        Why not call the charge fuel element, for purposes of Avios flights.
        As all eu flights must be advertised as the total ticket price, why do the airlines even have this?

        Not that i am defending BA, but raffles figures assume a full load, and BA report a 95% load factor, and there are always currency fluctuations.
        US law is daft, but i would say as the price is displayed b4 you buy, then dont buy, similarly if you dont like the airlines FF programme, use a different airline

        • This misses the point though. The idea that you should pay for fuel on a redemption ticket is stupid. A surcharge is something which should only cover an unexpected increase in costs since a price was set – and only then if the cost increase is so high that it threatens the viability of the underlying contract. That is not the case here.

          • Mr Bridge says:

            I completely agree. Its the same as redeeming clubcard points in tesco, but having to pay the VAT in cash! But if that were the rules of the clubcard scheme, you would decide if to shop in tesco or sainsburys. My point was that it is not a surcharge, its an element of the ticket price, and that element is not covered by the avios redemption (rightly or wrongly).
            On a seperate note, do first class passengers consume more fuel than those in economy? maybe its the cost of flying the real glasses and plates rather than the plastic ones!

          • But why, then, is the surcharge £200 higher if you start your return flight in the US rather than the UK?

            The end result of this will be that BA will end up fixing the surcharge and rebranding it as a supplement – probably £500 return for Club World / First and £300 for Economy / WTP. That would, at the very least, bring clarity to the numbers.

            It won’t solve the problem of corporate net fares, though, which – in the scheme of things – probably account for as many bookings as Avios.

      • Perhaps I am being naive and simplistic, but fuel costs at the pumps have come down recently – has aviation fuel costs/litre or gallon done the same? If so, compared to 6 mths ago it would appear that aviation costs have come down and so, therefore, should any charge to the passenger.

        • The airlines hedge their fuel costs, often fixing the price several years in advance, so short term movements are not an accurate guide. However, your point is the crux of the court case.

  2. Good. I’m glad they aren’t allowed to get away with it. It clearly has nothing to do with the price of fuel.

  3. mike turnbull says:

    Hopefully, if they win, these guys will move on to take on AF/KL

  4. mrtibbs1999 says:

    Ba look in real trouble here. The law is quite clear. They should have called it a wine surcharge, a food surcharge, a nice weather surcharge. Anything but related to fuel; which, in the US is covered by clear and unambiguous legislation!

    The net effect in this case will either be nothing, or backdated refunds and a renamed surcharge. Sadly the surcharge will not be going away!

  5. Flyersj18 says:

    While I would love to see the end of “fuel surcharges” they simply aren’t going to go away IMO as they generate too much valuable revenue.

    Should BA lose this case look watch the charge simply become labelled as co pay. The only other alternative is that the number of miles needed to redeem flights to go up considerably. Not a particularly desirable outcome…

    • Indeed – looks like the lawyers will be the main winners here, can’t see much changing for redemption costs.

  6. I would suggest it’s unfair to say that BA will make a $30k profit using the breakdown of fuel surcharge costs by seat above: a) not all flights are full and b) when they sell any ticket they do not know that a flight will be full. Would you be happy for them to come back to you and say “the flight’s only 50% full so we need to charge you double the fuel surcharge”?

  7. I don’t understand why “fuel surcharges” can’t just be part of the fare on paid tickets, when they don’t attempt to charge you more or refund you if the cost of fuel changes between the time of payment and the time of flight.

    With award tickets, again a “redemption fee” is acceptable but the calculation of this needs to be transparent and available without searching for flights. For example, I believe the fuel surchages of Cathay must be filed and approved with the Hong Kong Aviation Authority. Does this happen with the CAA?

    • No. That is why fuel surcharges on Cathay are very low ex-Hong Kong. For some reason this rule doesn’t apply to BA, so it is substantially cheaper to redeem on Cathay vs BA out of HK.

      • I’m not so sure about that. I paid around £80 for CX Y redemption and £260 for BA J redemption, both with BA Avios, HKG-LHR, around Christmas (going to Asia twice, not enough Avios for J both times and no availability anyway!)

        No idea how much it would have been for CX J and BA Y.

  8. If the judge has concluded that the surcharge does not appear to be based on the actual additional cost per passenger, then BA may then also be asked to explain why the charge is imposed differently depending on the class travelled. It shouldn’t be if BA have described the reason for the surcharge accurately. The additional cost of carrying each passenger is on average the same and depends more on their wheight and not at all by the class they travel …. except the fact that F food and drink may be slightly heavier per paasenger 😉

  9. Not just redemption tickets that have been hit hard by Fuel Surcharges – staff / industry tickets are seemingly pointless when most discounts apply to base fares and not the taxes / surcharges. May not be relevant to you but there are 100,000+ of us in the UK – and base fares to Asia / US frequently £100+taxes. Perks, what perks!

  10. The only thing that I see coming out of this is the devaluation of an Avios point.

    Time to burn those points.

  11. This is very interesting! Having travelled with the missus on 3 reward flights to the US with companion vouchers in 2009, 2011 and 2012 – a refund would be very welcome!!!

    • I really hope BA lose this and simply wish there was similar legal routes open here in the UK.
      Avios being devalued is no argument against this and as we have seen from hotel dowgrading of their programmes not the end of the world.
      Of greater concern must be charging surcharges when the operating carrier has no such charge. That is deceptive if not theft.
      Annual x 4 redemptions since 2008 so a refund would be very welcome, even in part.

      • Would BA be obliged to refund tickets bought in the UK and for travel returning to the UK?

        • Depends how it falls. Really wouldn’t expect this to come off, though, unless BA has broken some odd US regulation on the legality of surcharges.

  12. Lady London says:

    I’m betting the rest of the industry would be grateful if BA would settle this out of court.

    The precedent a loss for BA would set, might potentially open up many more claims on other airlines.

    Incidentally, I noticed a few months back that YQ seems to have been renamed something else, and is no longer called “fuel surcharge” on some BA fare quotes I obtained. Shortly after the first time I noticed this change I heard about this court case :-)

  13. wobbly wings says:

    We’ve debated this for years on FT. Fuel surcharges are a scam, nothing else. Fuel is an essential cost of flying airplanes and cannot be removed from the base cost and added on top. Fuel prices are relatively stable; so there is no temporary blip to compensate against. Even if there were, airlines could incorporate into the fares every time they file the fares. Surcharges mostly go up irrespective of their hedging and the underline price of fuel. All it is is a mechanism to force co-pay on awards and all sorts of discounted tickets and pay reduced commission on ticket sales. It’s time some regulator calls the bluff of the industry on this (it’s not only BA of course). Inevitably in the UK no one would take action, irrespective of how absurd it is and how many times this has been raised. It needs to be our friends over the Atlantic to take things forward.