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Fuel 'surcharge' a fare increase with a fancy name

By Brett Snyder, Special to CNN
Consumer demand can often keep fares high even after fuel prices drop.
Consumer demand can often keep fares high even after fuel prices drop.
STORY HIGHLIGHTS
  • Brett Snyder: Airlines often do more harm than good blaming fuel prices for fare hikes
  • When fuel comes down, fares don't follow at the same speed
  • Fuel is certainly a big factor, but high demand keeps prices up

Editor's note: Brett Snyder writes a weekly CNN.com travel column. Snyder is the founder of air travel assistance site Cranky Concierge, and he writes the consumer air travel blog, The Cranky Flier.

(CNN) -- I saw my first $4 gallon of gas since 2008 this week, and it's not a surprise considering all the governmental uncertainty in the oil-producing world. What is surprising is that despite the cost increases, people still get angry when airlines try to raise fares.

This is one time when fare increases are easy to justify, though I would argue that airlines often do more harm than good when they blame fuel prices for fare increases. The problem is that fares rise quickly when oil prices go up, but they don't come down as quickly when fuel costs drop. It's that disconnect that makes this whole dance so frustrating for passengers.

But the reality is that the price of fuel isn't as big of an influence on fares as you might think. It's more of a scapegoat, and it's one that's not used well. In most cases, airlines simply increase fares because they can.

Fares plunged after September 11, and they dropped again when the housing bubble burst and we went into a major recession. Why? Because demand dropped. It's basic economics. The airlines fly seats around all day, and they need to fill them. If demand goes down, then so do fares to try to get people flying.

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On the flip side, fares go up when demand goes up, and that's what is happening right now. So does fuel have anything to do with it? Yeah, it does. Fares would be going up right now regardless of the cost of fuel, but fuel prices are pushing fares higher. When fuel spikes like this, airlines race to keep fares higher than their costs. Otherwise, it's an all-too-familiar sea of red ink.

You probably think airlines want prices to go as high as possible. Not true. When fares go up faster than demand, the airlines have to cut back on capacity or risk having a ton of empty seats. And that's exactly what we're seeing right now. The big airlines are cutting back their growth plans by 1 to 2 percentage points to make up for this. We will definitely see further cuts if fuel continues to rise.

But is fuel really even that big of a cost? Yep. It's the single largest cost for an airline when fuel prices are high. (It's sometimes No. 2 behind labor when fuel prices drop.) So even small changes in the price of fuel can have a big impact.

For example, it takes nearly 5,000 gallons to fly a 757 from Los Angeles to New York (and more on the return, thanks to headwinds). Just looking at the spot price of fuel now versus December 1, it will cost an additional $20 per person to carry 175 passengers on the flight. That's over $40 on a roundtrip in a business where margins are razor-thin at the start.

For some airlines, the answer is to slap on a fuel surcharge. The very idea of a surcharge gets people up in arms in this era of unbundled add-on charges for bags, leg room and more. But this "surcharge" is a standard fare increase with a fancy name because in the U.S., the law requires that fuel costs be baked into the total cost of the fare when advertised or shown online. So it's not a fee that you're hit with unexpectedly; you'll almost never even see it broken out from the fare.

So why use a surcharge instead of a fare increase? It's easy, that's why. Instead of changing every fare in the system, the airlines can just put a $20 surcharge into the system and call it a day. For you, the traveler, the end result is the same. The fare goes up.

Since the surcharge is easy to add from an operations standpoint, it should be simple to take it away when oil prices go down. But most airlines are in no hurry to pull surcharges if there's enough demand to keep them. Try explaining that to a customer. You can't.

Instead, the airlines lose credibility. That's part of the reason baggage fees have become such a flashpoint for travelers; the airlines blamed them on oil prices but kept them on as a nice revenue stream after fuel costs dropped.

So as you see fares rising higher and higher this year, remember that it is at least partially to offset the cost of fuel. But if fuel prices come down, don't get your hopes up that airfares will drop as quickly.