Redemption strategies, in the age of rising fuel surcharges

A number of airlines in the United States have now set limits with their flight offerings in response to the increase in fuel prices brought about by the conflict between Russia and Ukraine.

Fuel has always been one of the airline industry’s greatest expenses, accounting for 15% to 20% of its overall spending. With that, the current oil crisis has severely impacted the industry’s operating costs since February this year. 

The predicted fuel price for March 2022 was only USD 2.45 to USD 2.50 per gallon; however, it peaked at USD 2.60 to USD 2.65 per gallon, which is almost 10% higher than people’s expectations. To cite, a Boeing 737 now costs around USD 36,000 to fuel, a 50% increase from its previous price of USD 24,000. 

With this, airline companies such as Allegiant and Alaska Airlines have resorted to cutting down flights from their normal operations so as to not raise ticket prices. 

According to a regulatory filing by the Alaska Air Group on March 8, 2022, they shall trim down flights by around 3% to 5% during the first half of the year due to the “sharp rise in fuel costs.” 

Meanwhile, Allegiant Airlines’ Chief Financial Officer Greg Anderson said the company will be proposing a flight frequency reduction of about 5% to 10% effective in the second quarter of the year to target weaker demand times. 

On the other hand, some airlines still choose to remain stagnant in facing the issue—among which are the big 3 airlines namely American Airlines, Delta Airlines, and United Airlines. They have decided to continue their normal operations, not cutting any flight nor raising ticket prices amid the skyrocketing prices of fuel in the market. 

Conversely, a relatively new carrier named Breeze Airways mentioned they would not charge higher ticket prices for the time being; should fuel prices continue to rise, they will have to succumb to a ticket price hike as this would add around USD 5 per hour per passenger to the airlines’ operating costs.

According to industry observers, high petrol costs at the pump will compel consumers to cancel vacation plans and make them less likely to fly. With that, airlines must carefully decide whether to tolerate increased fuel prices to cut into their profits or pass the cost on to passengers, forcing them to pay more for their tickets.

What it means for ticket redemption strategies.

The fuel surcharges have been creeping up.  It is particularly noticeable in business class.  The demand for tickets remained robust so the prices are being passed to the consumers.  

In the world of miles this means you should steer clear of programs that pass fuel surcharges to the consumers such as Avios from British Airways/Iberia/Aer Lingus and now Qatar or Flying Blue by Air France/KLM. It also means avoiding airlines with dynamic charts like Southwest and Delta.  The programs to look for are the ones with static or semi static award charts to look at are United, Singapore or Aeroplan. Here is what you need to know when it comes fuel surcharges and frequent travel strategies

Also when it comes to fuel surcharges, not all destinations are created equal.

If you can be flexible, consider a “low fuel surcharge” destination. Australia, Thailand, Mexico, Turkey, Argentina, Brazil, Hong Kong are the ones to check out

If the destination of your choice is not a low tax one, look into booking a short haul flight for cash to one of these countries and then book a long-haul flight without paying fuel surcharges. Arrival and departure fees can be different too. It  might be cheaper to fly into certain countries (like Germany) rather than to fly out. 

Finally  British Airways Avios deserves a special mention when it comes to fuel surcharges. Their fuel surcharges sometimes are just bonkers. It is not uncommon to see Fuel surcharges of $1500 on their business class ticket. But there is a loophole. British Airways and Iberia Avios programs allow free and instant transfer miles between their accounts of the same card holder. Iberia fuel surcharges are much more reasonable than those of British Airways.  Don't expect dramatic savings, but every little bit helps.

Whatever you do, always do your math.  There is no one size fits all approach.  Every itinerary is different so mix and match till you find what works best.