Foreign airlines raise fuel surcharges; U.S. carriers next?

Several foreign airlines are increasing fuel surcharges on passengers, raising the prospect that U.S. carriers could follow suit.

Lufthansa, Thai Airways, India's Jet Airways and Kingfisher, and airlines in Taiwan have announced surcharge increases for domestic and international routes in recent weeks, citing higher costs and lackluster revenue because of the low demand for air travel.

The increases — with Lufthansa raising its charge on domestic German and European flights by $4 to $34 a flight leg, but leaving it at $116 for trips to the USA — come as crude oil prices have crept back up 43% this year after dropping from record highs last July. Crude settled at $63.56 a barrel in New York on Friday.

U.S. airlines haven't followed their international competitors in raising surcharges on domestic routes, though they have on most international routes.

What U.S. carriers spend on fuel began inching up this spring, according to Transportation Department figures.

The increase in fuel costs comes as air travel has slowed dramatically in recent months amid the global recession. Deep cuts in the number of seats the airlines are making available haven't offset the slowdown.

"Carriers are still looking for revenue (to make up) for the revenue shortfall due to the weak economy and fewer travelers," says David Castelveter of the U.S. airline trade group Air Transport Association. He says fuel costs account for 21% of U.S. carriers' operating expenses.

In November, U.S. carriers eliminated or significantly lowered fuel surcharges for thousands of domestic fares and folded the amount of the surcharge into the airfare, effectively keeping prices unchanged at the time.

Fuel surcharges can add $100 to $250 to a round trip, according to Rick Seaney, CEO of the airfare website FareCompare.com.

John Armbrust, publisher of World Jet Fuel Report, says foreign carriers have been more proactive about managing risk associated with fuel prices. Airlines are also "trying to get ahead of the game" in anticipation of oil prices rising once the global economy rebounds.

"It used to be that they did it after the fact," Armbrust says.

U.S. carriers are reluctant to bring back surcharges, Seaney says. If fuel prices continue to rise, he predicts U.S. customers will likely feel the effect in higher base fares and not separate surcharges, Seaney predicts.

"I'd be surprised if they went back to (fuel surcharges)," Seaney says of U.S. airlines. "I just don't think they get the marketing benefit."

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