Is American AAdvantage Adding Fuel Surcharges to All International Awards?

Lucky wrote a disturbing post this morning suggesting that American was going to start collecting fuel surcharges on all international awards.

If correct, this is a very big deal.

What are fuel surcharges?

First of all, understand what “fuel surcharges” are. They’re generally a fixed amount of money added to a fare. The amount will usually be the same across all fares for a given city pair. In other words, all “New York – London” fares that an airline publishes will add the same amount for fuel surcharge.

There are some exceptions to this. An airline may file a different fuel surcharge amount for premium cabins (so a business class ticket might have a higher fuel surcharge than a coach one). And it is possible to file discounted fares that do not incur fuel surcharges or that have lower ones.

But in general, each route can have a fuel surcharge and it’ll be a constant amount added onto all fares for that route.

Here’s a fare breakdown for a random set of dates in September flying British Airways roundtrip economy between San Francisco and London Heathrow.

The fare is $598 ($284.50 outbound plus $313.50 return). The fuel surcharge is $458. The rest of the taxes and fees total $220.10.

Why do airlines impose fuel surcharges?

Once we establish that, it’s easy to understand why fuel surcharges are useful to airlines. Fuel surcharges have nothing to do with the price of fuel.

It makes no logical sense for ‘fuel’ to be broken out separately from the rest of the cost of transportation. It’s one of the cost factors in providing transportation. You cannot buy transportation with the option of taking the fuel or not. Fuel surcharges are, fundamentally, part of the cost of transportation.

Fuel surcharges are an easy, efficient way for airlines to alter their airfares across a given market. They can change one number — the fuel surcharge — and raise or lower (almost) all prices in the market at once.

That’s a whole lot easier than changing the price of every single fare in the market.

For paid tickets, fuel surcharges don’t really matter. They’re displayed as part of the ticket price. They don’t really increase the amount most consumers pay. (They may raise the price paid on some contract fares, where a base fare is negotiated but the surcharges may be on top, that doesn’t touch most consumers but it’s another reason airlines like fuel surcharges.)

How do fuel surcharges influence the cost of award tickets?

This becomes a much bigger deal for award tickets than for paid tickets. It’s almost an historical accident. Airlines use the tool to quickly and efficiently alter all fares in a given market. And as a byproduct they’ve figured out a way to extract cash from their frequent flyers for ostensibly “free” tickets.

Most European and Asian airlines say, effectively, that miles cover the cost of the airfare but not the taxes and fees that are part of the ticket.

So when you redeem your miles, the fare is covered by the fuel surcharges are not. All of a sudden instead of collecting perhaps $50 – $200 in airport taxes in government fees, an airline might collect nearly $1000 total in taxes, government fees, and fuel surcharges.

In our San Francisco – London example above, the fare is $598 and the taxes and fees are $678.10. An airline adding fuel surcharges onto the cost of an award would require the person redeeming miles to come out of pocket $678.10 (not including any telephone booking fee). That’s 53% of the cost of just buying the coach ticket even though one is using miles..

One implication of programs that add furl surcharges to award tickets is that coach awards almost never make sense — a fuel surcharge often represents a substantial portion of the total ticket cost, sometimes even the majority. So you’re spending miles and still coming out of pocket half or more of the cost of a paid ticket, not earning miles and status, and are constrained by award availability.

I’ve even seen cases where discounted fares exist in a market that have lower fuel surcharges — and it is less expensive to buy that ticket than it is to redeem miles (using miles could mean spending more cash rather than less).

Will American Actually Begin Adding Fuel Surcharges to Award Tickets?

They already add fuel surcharges to awards on British Airways. Fees on British Airways awards are several hundred dollars more than flying American across the Pond today.

They also collect a very small fuel surcharge — sufficiently de minimus that I don’t generally worry about it — on Iberia. Those charges are about 10% the amount added onto British Airways awards.

I have reached out to folks both at American AAdvantage and in their communications department to clarify what is going on, but:

  • I reserved a Malaysia Airlines award this morning, and fuel surcharges were added.

  • I reserved a Cathay Pacific award this morning, and fuel surcharges were not added.

  • I hoped that this change was simply going to be adding Malaysia to the list of airlines where American collects fuel surcharges. That does not appear to be the case — an Executive Platinum agent read me their internal guidance that said effective today (August 28), American would start to collect other airline-imposed fees on awards. The agent pushed back on calling these fuel surcharges but I was able to confirm that the new fees are “YQ” and “YR” which are the codes generally used for fuel surcharges.

So presumably they are in the process of rolling out this change to other carriers, subject to confirmation and clarification.

But since it hasn’t yet rolled out to other partners, and might, if you have any awards you’re thinking about booking today would be a good day to do so.

How Big a Deal? What About Other Frequent Flyer Programs, What Will They Do?

This means that many international awards will get several hundred dollars more expensive.

It also means that coach awards will rarely make sense to destinations where there are significant fuel surcharges, since even though you’ll be using miles, not earning miles, and will have to hunt and peck for award seats you’d still wind up paying much of the cost of a paid ticket.

There are some destinations that don’t incur fuel surcharges, such as South America. There are some airlines that don’t impose fuel surcharges, such as Air Berlin.

But — again, if accurate — this is a huge across the board change, one of the single biggest overnight and without notice devaluations that I can ever recall. It is at a minimum on par with the British Airways Executive Club massacre of November 2011 (there it was changes to their mileage pricing primarily, they already added fuel surcharges onto awards).

Delta already adds fuel surcharges onto some partners like China Southern. They add a fee that is effectively a fuel surcharge onto awards originating in Europe. They have flirted the most with fuel surcharges in the past among US airlines, they’ll certainly watch this closely.

US Airways does not impose fuel surcharges, though they have the most ‘fees’ (which are much smaller) — fees simply for using miles. They’ll watch this closely, merger or no. (And it is interesting to see this major change — that is happening independently of a merger — as I’ve been saying, changes are coming to programs regardless of any mergers and if the deal goes through it would simply be blamed for those changes.)

United MileagePlus does not add fuel surcharges. They also offer fantastic routing rules and a reasonably priced award chart. Already they probably had the best redemption value of any major frequent flyer program. I’m hopeful that the sway Chase holds with them will ward off their making this sort of shift — adding fuel surcharges to United awards would be a major blow to to the value of Chase products. Citibank doesn’t have the same influence with American, especially as they’ve negotiated what a co-brand deal would look like post-merger.

I may be starting to pay a lot more attention to the 100% bonuses on purchased miles from Avianca’s LifeMiles, a Star Alliance program which doesn’t impose fuel surcharges and has reasonable one-way awards (but frustrating customer service and an inability to book itineraries with flights in more than one class of service).

In the meantime, my very large AAdvantage balance may have just gotten a whole lot less valuable. Look — $600 for a first class roundtrip Cathay Pacific ticket, far less than what coach would cost — is still “worth it.” But the miles one day cover this cost and the next day do not, that’s a big difference and a devaluation.


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About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. The crazy part about this all will be the talk from people exiting the AA brand only to find the same mistreatment on deck from the next airline. Amazing how poorly these airlines treat their most loyal customers.

  2. This would be a huge blow.

    I recently redeemed AA miles for a OneWorld Explorer award – LAX-HKG(CX F)//KUL-LHR(MH F)-LAX(BA F) – $472 + $25 booking fee. A similar redemption in the future could run north of $1k.

  3. Fuel surcharges, which have nothing to do with fuel, are a fraud. I don’t like to do business with companies defrauding their customers, plain and simple.

  4. Do you think that this fee being on BA represents a higher payout from AA when miles are used on BA? And if so, Malaysia is also an expensive payout?

    It just seems too coincidence that Malay is new to OW and they are the only one with YQ charges so far.

    If this is something they do to all airlines… just… wow. Do they not want people redeeming their miles? The reputation of using miles is increasingly terrible. For most people I talk to it’s a joke: there are no seats on the days the want and they end up paying hundreds of dollars. Why would anyone want to be loyal to an airline that screws you for using points?
    I just can’t believe this wouldn’t have an impact in their loyalty. Or would it?

  5. @ AlohaDaveKennedy – I agree, it is fraud. How is this not illegal? You assume they are paying BA for fuel… but they aren’t.

  6. I like Star alliance better but chase didn’t have much pull on the BA devalue or fuel charges.

  7. Nick, more likely AA gaining more revenue from an area of the balance sheet that is a liability. How to turn a negative into a positive (in their eyes). Revenue magically appears from a once profitless flight.

  8. @DaninSTL – Their pull with UA stems from having provided (or the co-brand credit card partner bank provided) debtor in possession and exit financing for the UA bankruptcy, and also the prepurchase of a substantial nine figure sum of miles to provide additional liquidity.

  9. You bloggers need to step up and fight these injustices, greed. I will never use miles and then pay full coach fare in fuel surcharge. It is mot theirs 100%. We have to step up

  10. I hope the DOJ is watching this.

    Also Citibank. Not as much need for me to spend on my AA card at 1:1 when I can earn Avios for Oneworld flights at 1.25:1 in my Chase card.

  11. Here is one more thought. Could it perhaps be true that there is not any taxes charged on fuel surcharge fees whereas there taxation on fares? Perhaps the same applied to the ever popular baggage fees…. not taxation and 100 percent pure revenue?

  12. What the hell, American?!?!? And here I was settling into my second year as EXP, all content with being with the best FF program. This feels like a painful kick in the nuts. It is the no notice that particularly pisses me off. Inexcusable.

  13. @Gary – In your numerous years covering the travel industry, what do you think has been the most drastic year for program devaluations? I definitely don’t have as much experience as you, but it seems like 2013 would be right near the top (Hilton gutted, Delta’s “enhancements”, MQDs/PQDs, possible AA int’l fuel surcharges).

  14. I don’t like it…however, can you blame them? You play a manufactured spending game with them, and they come back and play a devaluation game with you.

  15. What fee, exactly, pays for carbon emissions? I understand airplanes give off the most. Is the carbon emission cost built into the price of the ticket?
    If not, why not? Shouldn’t we (the customers) be paying for that?

  16. anybody know if I put an award on hold under old rules, can they still change my fare and charge me for YQ?

  17. They are obviously trying to slide this in under the carpet. However a big big deal needs to be made, ideally it will be a zero sum game or worse for them, otherwise the contagion may spread.

  18. @ Gary — I think it’d be helpful if you can put in your post social media links to AA’s FB/twitter accounts so people can react / retweet / socialize their discontent. Thx for considering.

  19. If the USdbaAA would become a reality, the devaluations in the FF programs would become worse and have more staying power. Even without the merger, devaluations would take place; however, the devaluations would be less restrained if there were even less competition …. as would happen if USdbaAA becomes a reality.

    Hopefully the merger attempt is closer to the grave than some of its fans want to publicly acknowledge.

  20. rom,

    Until you hit purchase and your held award reservation is ticketed with you having a ticket number, don’t count on WYSIWYG.

  21. If you’re going to throw in fancy latin legal terms, at least spell them correctly;) It’s “de minimis,” not “deminimus.”

  22. Gary, I am planning to move overseas some time this fall and can’t make such a spontaneous decision as to the date. It requires coordination. And personally, this is another reason why I’m upset with American Airlines’ callous, under-the-radar move.

  23. @Gary If I reserve a reward ticket today, and decided to change it later (I recall that AA does not charge change fee as long as only date is changed), will AA charge me the fuel surcharges?

    I have a trip coming, but I can’t determine the departure date yet! Should I just go ahead to make the reservation, and make whatever changes later?

    Thank you!!!

  24. As of immediately, my loyalty is entirely with United. I hope United recognizes the possibilties in attracting the many enraged American customers, and weighs that above the temptation to match this absolute gutting of one of the best and pioneer programs.

  25. @Daniel – presumably they would add the extra surcharges to a reissued ticket but it’s possible they would have a policy of not doing so in this instance that we don’t know about yet

  26. This being commonplace in the UK with both BA and VS, it was only a question of time.

    That doesn’t make it right, with no prior warning but… It was always going to happen

  27. honestly you bloggers are a waste. you guys do nothing than asking us to use your links to get compensation. why don’t you work with us SOMETIMES and fight back these greed and injustice. These fuel surcharges are fraud. What’s the benefit of using tens of thousands of hard earned miles for an award ticket and than pay full coach fare in fuel surcharge on top of that? that is a rip off. I checked fares with airlines that charge fuel surcharge. It is better to just pay the full fare than waste miles and than pay full fare on top of that.

  28. @jim actually I was (1) pretty hard on American here I thought, but (2) already working with media to get stories out on this (they already confirmed my quotes with me), though I did hedge in the piece waiting for some confirmations because I wanted to better understand what was going on — and it turns out to have been a mistake.

    I work really hard on this stuff, getting the word out about what would have been a HUGE devaluation. What I don’t do is write publicly “I’m now on the phone with these reporters pitching this as a story.” And I don’t actually have to, since many of those reporters read and subscribe to this blog, and I had folks contacting me so they could understand what was going on and get perspective on it.

    I’m not sure how to react exactly to your comment, I’m struggling a bit, probably even a bit hurt because I believe me I fight these things tooth and nail.

  29. just to be clear please:
    -does AA charge fuel surcharges for international award tickets?
    -what about domestic award tickets?
    -international revenue tix?
    -domestic revenue tix?
    thanks

  30. @ Gary – don’t mind folks like jim… he wasn’t thinking of the fact that your already blogging about it is bringing attention to the potential issue. i also sense a DYKWIA from the guy. keep on the great work!

  31. @Mr Cool – AA charges fuel surcharges on revenue tickets where the operating carrier includes them with the fare. So there are no fuel surcharges on revenue tickets domestically or to South America. There are no fuel surcharges on revenue tickets involving Air Berlin, since Air Berlin doesn’t file fuel surcharges.

    AA does not charge fuel surcharges on any award tickets, regardless of whether the operating carrier charges them — except for British Airways where they add the same fuel surcharge as on a coomparable British Airways paid ticket, and except for Iberia where they tack on ~ $50 in fuel surcharges which is far better than the $350 – $700 or so on a paid ticket.

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