Virgin Australia drops fuel surcharge, cuts airfares

Virgin Australia drops fuel surcharge, cuts airfares

Virgin Australia says it will reduce US airfares by up to $50 and roll the fuel surcharge into base fares in response to falling jet fuel prices.

The $680 fuel surcharge which the airline currently applies only on its flights from Sydney and Brisbane to Los Angeles will no longer be applied as a separate line item in the ticket, but instead be rolled into the base fare.

As of Friday January 23 that base fare will drop by $50 for travellers on a business class return ticket to Los Angeles, and $40 for economy and premium economy.

Virgin says the cuts are sustainable because it expects fuel costs to remain at their current low levels.

"These reductions reflect the benefits of the decline in global oil prices along with the negative impact of the depreciating Australian dollar," the airline explained in a statement.

ACCC investigates fuel surcharges

The Australian Competition and Consumer Commission is now investigating airline fuel surcharges, which have not fallen despite the cost of jet fuel plummetting from around $US107 a barrel in July to under $50 a barrel this week, to sit at its lowest level in almost six years.

"We are looking at what has been said and done at various times in relation to the fuel surcharges," said ACCC chairman Rod Sims last week.

"It is not against the law to introduce a surcharge – what is against the law is to mislead customers."

Virgin's move will undoubtedly put pressure on Qantas and its partner Emirates to reconsider their own fuel surcharges.

Qantas currently adds a fuel cost of $390 one-way business class fares to the US, with $340 for economy and premium economy fares to the US.

Flights to the UK and Europe see a $540 fuel surcharge in first and business class, $385 for premium economy and $285 against an economy ticket.

Qantas: "Oil doesn't fuel our profit"

Qantas has repeatedly stressed that although it is now flying back into profitability the decreased fuel costs play only a small part in the rebound.

Analysts suggest that every dollar-per-barrel fall in oil price lands Qantas a $36 million increase in pre-tax profit.

Read: Alan Joyce flags $350 million Qantas profit for July-December

In November last year, Qantas exec Gareth Evans – then the airline's Chief Financial Officer and soon to be crowned as CEO of Qantas International – told Australian Business Traveller that add-on fuel surcharges go nowhere near towards covering the airline's multi-billion dollar fuel bill.

"Fuel prices have risen dramatically over the last ten years, it's gone from $40 a barrel to $120 a barrel, so our fuel bill has gone from $2.5 billion to $4.5 billion" Evans said.

"While we have from time to time increased the fuel tax across that period, those surcharges don't come close to recouping the fuel price increases that we've seen."

"We will need to see a substantial and sustained drop in fuel prices before we consider reducing our fuel surcharges."

Read: Qantas: no plans to drop fuel surcharge

Follow Australian Business Traveller on Twitter: we're @AusBT

David Flynn
David Flynn is the editor of Australian Business Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.
 

13 comments

  • Gian

    Gian

    22 Jan, 2015 11:21 am

    "It is not against the law to introduce a surcharge – what is against the law is to mislead customers."


    How is rolling a surcharge into the base fare to hide it not misleading customers?


    I only fly VA and its partners but that sort of practice pisses me off. Call a spade a spade and say you're reducing your surcharge by $50/$40.

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  • Hugo

    Hugo

    22 Jan, 2015 12:47 pm

    >How is rolling a surcharge into the base fare to hide it not misleading customers?

    Because an all-in-one fare isn't misleading. You pay $thismuch and you get from A to B. Pretty clear.

    It's only when you start breaking it down into "fare" and "fuel surcharge" and "airline peanut abolition fee" and "mandatory 15% pilot gratuity" and "fee for booking by any possible means" and "day ending in Y surcharge" that it becomes potentially confusing.

    Having said that, nowadays they are forced to advertise all-inclusive fares anyway, not base fares, so it isn't nearly as bad as it used to be. 

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  • TheRealBabushka

    TheRealBabushka

    22 Jan, 2015 11:32 am

    Good on you Virgin!

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  • mmarco

    mmarco

    22 Jan, 2015 11:33 am

    Should be good news for frequent flyer points redemptions as the fuel surcharge will no longer be payable... right?

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  • Satoshi Takayama

    Michael Kao

    22 Jan, 2015 12:09 pm

    I don't think VA charges fuel surcharges at all with their redemption ticket. Even if they do, it's minimum compare to Qantas. It's like $100 vs $450

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  • Jono

    Jono

    22 Jan, 2015 11:43 am

    I think surcharges and added fees should be kept for things that can be opted out of by the traveller, things such as baggage that you can experience the service with or without. With things like fuel, the plane ain’t gonna move unless you have it. (I may be missing something here, such as some form of tax or financial engineering).

    I do agree with the first commenter here and having just spoken to a Virgin Australia rep, she said they’re moving the fuel cost into tax charges which will be itemised. I was tempted to say ‘is that not like the stalker I saw when I was jury duty saying that she was simply ‘running into him in a pre-meditated fashion’?

    So it made me feel the headline was in-correct. They’re not dropping the fuel charge at all. However, if QF see this an drop theirs instead of hide it, could be a victory.

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  • Gian

    Gian

    22 Jan, 2015 11:51 am

    Agreed,

    They should just say "hey all, we are dropping our fuel surcharge by a modest $50/$40 depending on class of travel"

    Just be honest.

    Im pretty sure consumers are happy with honesty from a company that wants to build loyalty.

    Don't get me wrong, I commend them from being the first Australian Airline to "lower their fuel surcharges" but they definitely have not dropped them.

    I'm also not having a crack at AusBT for the headline, because, although misleading, its actually the truth, the surcharge is "gone," but it clearly states in the article what is really occuring.

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  • mrmaxwell

    mrmaxwell

    22 Jan, 2015 12:28 pm

    Fuel surcharges have always been a joke. They are a cost of doing business not an additional charge that PAX should need to pay. VA should go one step further and just abolish them not roll into base fare as a hidden item.

    QF especially were very quick in adding them when fuel was rising but surprise surprise absolute silence on the way down....

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  • Greg84

    Greg84

    22 Jan, 2015 01:35 pm

    Completely agree...if you're a transport business fuel is a part of your cost base...may as well have a cabin crew surcharge if you want to start stripping out costs...if fuel goes up, fares go up, if fuel goes down, fares go down...

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  • Hugo

    Hugo

    22 Jan, 2015 12:43 pm

    Well, I was actually gonna book a flight to the US sometime this week, possibly today, but now I guess I'll wait 'til tomorrow! 

    Not sure why they'd announce a price drop one day before putting it into effect. But hey, cheaper is good. 

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  • Charles

    SteveCF

    22 Jan, 2015 03:30 pm

    This is good PR by virgin and once again on the front foot making its main competitor in Qantas respond. By getting in early the headlines will read when/if Qantas drops their Surcharge, "Qantas follows Virgins and drops fuel surcharge". Just like their new business catching up to Virgin etc..

    Now that qantas are getting back into profit, they need to start taking the lead in good PR.

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  • Charles Nicholas

    cn7799

    22 Jan, 2015 06:57 pm

    ACCC is a toothless tiger and did nothing for the Australian Consumers except thier fat cats laughing all the way to the bank with 6 figure salary. Its time ACCC does some real work for the benefit of Australian consumers instead of costing taxpayers more money.

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  • Ozshanel

    Ozshanel

    22 Jan, 2015 08:50 pm

    So, let me get this straight.  They are changing the surcharge for one destination and are being hailed as heros?

    If you book a flight with Virgin to Singapore, or anywhere on the Singapore Airlines network, the fuel surcharge will still apply.

    Seems a bit misleading to me.

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Guest

21 May, 2019 10:57 am

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