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The great airport tax rip-off

MAYA FISHER-FRENCH | JOHANNESBURG, SOUTH AFRICA - May 11 2009 09:02
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Of the R400 in "taxes" one pays on a full service airline from Johannesburg to Cape Town only about 20% actually goes to airport taxes. For a return flight to London at the moment the "taxes" can cost more than the airplane ticket, however, mandatory taxes and insurances are a third of those costs.

The bulk of these so-called taxes are actually a discretionary fee called a fuel levy. The rapid decline in the oil price has meant that the fuel levy has become a neat way for full services carriers such as British Airways (BA) and South African Airways (SAA) to promote cheap tickets -- before you read the fine print.

Comair, which operates both Kulula and BA locally, says that one of the biggest components of these surcharges is the fuel levy, which is linked to the rand/dollar exchange rate as fuel is billed in dollars. "Therefore it is up to the airlines' discretion as to how much they charge as part of the fuel levy as it forms a large part of the business' cost base," says Glenda Zvenyika, Comair communications manager.

Take, for example, an economy return flight between Johannesburg and Cape Town. British Airways and SAA both charge R1 200 for the flights. That looks compelling when compared to no frills, low-cost airline Kulula, which will charge R1 800 and 1Time, which charges R2 000 for the same return flights. But, once you add in the airport taxes of R951, the low-cost carriers are cheaper. Kulula charges about R150 for airport tax and 1time includes it in their total quoted airfare.

Depending on the model, some airlines charge customers separately for their fuel bill. This would be the same as climbing into a taxi, being told the rate to the airport is R150, but when it comes to paying, you discover you still need to fork out R100 for petrol.

Michael Snyman, financial director at 1Time, says the fuel levy is just a marketing strategy to cover up the real airfare. "Other airlines implemented a fuel levy to cover the additional fuel cost from high oil prices. Now the oil price has dropped significantly and they are cashing in."

Snyman adds the airlines do the same with airport tax. "They add a margin on to it to disguise the hidden airfare and if a ticket costs R100, the airport taxes are R500. In fact, the airport taxes will be about R50 and the ticket is R550," says Snyman, who adds it is misleading to the consumer "because they feel that they have to pay the airport taxes and just accept it meanwhile the airline has added their profit on to it".

However, both BA and SAA dispute the suggestion that any profit is added to the mandatory taxes and insurances. The price difference is made up by the fuel levy.

A good illustration of how different airlines use different models is to compare the taxes on a flight to Mauritius when booked via Kulula online versus BA online. If you book through BA you pay R2 990 for the ticket and R1 800 in taxes and surcharges. For exactly the same flight, same plane and same airport booked through Kulula online you pay only R445 in taxes, but the return ticket price is R4 765. The fuel levy disguised as a tax is simply part of the actual ticket price.

CONTINUES BELOW


Erik Venter, joint CEO of Comair, says the difference between the two airlines is a result of an antiquated airline booking system. In 2004 the fuel levy was introduced because the speed at which the oil price was rising required ticket prices to be revised monthly. However, for one airline alone this meant changing 2 000 different ticket prices because of the various discounts and special rates provided to various customers and suppliers. All these price changes have to be put through the international airline tariff publications company ATPCO.

It was easier to have a separate fuel levy, which could be changed independently. Venter agrees that it would be more transparent to call it a fuel levy than a tax, but apparently the outdated airline pricing system did not have additional space for a fuel levy category and it was added to the "tax" box. Venter argues that although this pricing mechanism lacks transparency it is a function of a poor system rather than a real desire to hide costs. Kulula, as a purely internet-based airline, does not have to do its pricing through ATPCO and therefore has more flexibility in changing its pricing. The emergence of more online-based airlines could see a reduction in the number of airlines that use the fuel levy charge.

But one still has to question the price one pays for fuel. BA currently charges a $141 fuel levy on an economy flight to London. That is about R1 200, so on a return flight that fuel cost is adding R2 400 to your ticket (total taxes are about R3 700). Currently you can buy a return ticket for just over R2 400, so the fuel levy is equal to the price of the ticket, or put another way, the fuel levy doubles the price of the ticket.

BA says it reduced the fuel levy on this flight by $45 in December because of the lower fuel price, but this does not offset the actual fall in the oil price. BA introduced its fuel levy in 2004 and in June 2005 the levy was $48 when the oil price hit $60 a barrel, and the price of jet fuel in dollars was 165c/gallon. Today the oil price hovers just above $50 and fuel prices are 139c/gallon. Yet customers pay a fuel levy that's 300% more today.

BA says it is not correct to use the oil price as an indicator of the fuel levy because of their fuel hedging policy. "While we do periodically adjust our fuel surcharge, it does not mirror the oil price, nor does it necessarily offset our fuel costs. In fact, although the surcharge was reduced in December our fuel bill for the nine months from April 1 to December 31 2008 rose by 48.4% to £2.244-million. Factors such as hedging and currency fluctuations affect what we pay for our fuel," says Stephen Forbes, spokesperson for BA. Therefore an airline with a better hedging policy could charge a lower fuel levy, so it is worth shopping around to compare taxes.

Venter says that while Comair has halved its fuel levy since its peak, it never fully priced the cost of fuel into the fuel levy. When the levy for local flights reached a peak of $65, Venter says a levy of $95 was actually needed to recoup the full costs, but Comair could not pass this on to consumers. Airlines are therefore now recouping some of their margins.

SAA says there is a lag of between three to four months from when the price of crude oil reduces to when the airline can benefit from this. "A further complicating factor is that SAA pays in rands for crude oil. The rand has devalued against the dollar and is only recovering recently," says Robyn Chalmers, head of group SAA corporate affairs.

Whatever the pros and cons of a fuel levy are, one thing is for sure and that is that frequent flyers are getting a raw deal. As SAA makes clear, "taxes charged on Voyager tickets will not be any different and Voyager miles are not transferable as airport tax, as this is not payable to the airline".

Of course, these taxes include a fuel levy and because it has been lumped in as a tax it cannot be waived, and therefore when cashing in your miles for a "free" ticket you are really paying for half that ticket not just your obligatory taxes.

This makes air mile programmes significantly less attractive while certainly being a positive development for the airlines, who are now able to generate some revenue from tickets they promised for free to reward loyal customers.
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Hi,

There are other “funnies” around airport taxes. Late last year I was quoted R4 390 with taxes and levies of R5 150 for a return flight to London ex Durban.

If the flight originated from J’Burg, the taxes and levies are R3 750. This implies a tax and levy component of about R1 400 for the Durban to J’Burg return flight.

A traveller will be taking a normal domestic flight to connect with the international leg, sitting alongside travellers terminating their journey at Johannesburg. The normal tax and levy for a return domestic flight is around R400. At the time I asked why the additional R1000 ? That's the way it is was the answer. Your article now makes it more clear why. Profit taking.

Therefore if travelling internationally, book your international leg ex Johannesburg and book the domestic flights separately. Save around R1000.

Cheers,
Iain Robertson.
Mad McMax on May 11, 2009, 10:18 am
Thanks for exposing this. I became aware of this "fuel levy" scam recently while claiming a flight using my Voyager miles. The ticket was cheaper than a normal fare with any airline but definitely not worth the years of loyalty to SAA and the thousands of miles that I had to redeem! In future I'll be basing my flight decisions on service and price and not loyalty.
Greg Arthur on May 11, 2009, 12:14 pm
SAA is appealing for our loyalty to help them get through these tough times, yet they show no loyalty towards us, whom they depend on. Airlines should realise that loyalty is reciprocal and if I don't feel that I'm being treated fairly, my loyalty goes out of the window.
Emile Myburgh on May 11, 2009, 2:41 pm
Okay folk, come the Consumer Protection Act, you are all going to have to do some open accounting to your customers. They have the right to know and to a fair deal and you will be obliged to prove it. Maybe not the very end of consumer exploitation, but this is definitely the beginning of the end! Remember the penalties, 1,000,000 Rand or 10% or your annual turnover whichever is the greater!
Andrew Lawrence on May 11, 2009, 6:26 pm
Read between the lies (lines) and it's all smoke and mirrors. The producer price of coffee drops by 50% and the retail price of Nescafe goes up by 80% - banks make more money from penalty fees on bounced debit orders that they do on the entire book of successful debit charges - it's the same dishonest dog ... and consumers are too apathetic to do anything about it.
John Web on May 11, 2009, 7:29 pm
What really flaws me is that BA charge the percentage cancellation fee on a totally unused airticket on the base fare as well as the fuel levy. the passenger hasnt travelled so no fuel has been used. so why are they being penalised. they get all the other taxes back. i feel that the airline can charge a fuel levy but include it in the fare - this will prevent them from bragging about low airfares. i am a travel agent and this really gets to me.emirates include their fuel surchage in the fare calculation so why cant the other do that. their fuel surcharges are negligable.
cheryl lowman on May 12, 2009, 10:24 am
Thank you for your article. In a global marketplace, it is of utmost importance that airlines are able to clearly and effectively communicate to their customers the role that exterior influences (such as fuel prices and taxes) play in determining the total fare.

I would like to clarify for your readers that I believe Mr. Venter was not referring to ATPCO as “antiquated” or “outdated”. ATPCO is the world leader in the collection and distribution of fare and fare-related data and counts among its customers over 97 percent of the world’s commercial air travel providers. An airline-owned company, we work closely with the industry to ensure that our solutions meet all current and future needs. ATPCO’s ‘YQ/YR Fuel and Insurance’ product, in use by over 300 carriers today, is “specifically designed (to allow airlines) the ability to control and collect fuel charges and other fees”. These charges can be modified independent of the base fare (meaning a single change can be easily applied across some or all of an airline’s fares) and all of the global distribution systems are capable of presenting this YQ / YR data as a separate item to customers. This, combined with ATPCO’s frequent data distribution to all distribution points and sales channels (up to 8 times daily), ensures airlines the speed and flexibility required to reflect a rapidly changing world.

You are correct that “Kulula… does not have to do its pricing through ATPCO”. However, it is not due to the fact that they are an internet-based airline. Rather, it is because Kulula chooses to distribute their fares in a limited number of sales channels. Should they eventually wish to appear worldwide in all pricing solutions and sales channels, then I can assure you that they will also find the ATPCO product suite a quality, cost-effective solution for their needs.
Darin Jones on May 20, 2009, 9:14 pm
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