The price of crude oil has plummeted about 41 per cent since this time last year, but many companies, from airlines to couriers, continue to levy a hefty fuel surcharge for their services.
Consumer groups are complaining that companies should be passing along the savings.
“It’s absolutely unconscionable,” said Bruce Cran, president of the Consumers Association of Canada, which has represented Canadian buyers since 1947. “The government should be protecting consumers from this type of gouging.”
Although these charges are focused in the transportation industry, they ripple through the economy and “end up on our dinner plates and everywhere else,” he said.
“The airline one sticks in our craw. It doesn’t make any sense at all.”
In recent years air carriers have been enjoying strong profits in part due to the low price of jet fuel.
Air Canada rolled fuel costs into its base fare for North American flights in May 2008, when the price of West Texas Intermediate crude was $137 (U.S.) per barrel and rising. It introduced a fuel surcharge on international flights six years earlier.
“We are feeling the pressure of rising gas prices like every business,” Air Canada spokesman Peter Fizpatrick told reporters at the time. “It’s a decision we didn’t take lightly. Even with this new fee, we are not recouping the full added cost of fuel.”
Crude is now hovering around $30 (U.S.) a barrel for the first time in more than a decade. A barrel of ‘black gold’ is actually cheaper than 24 cans of Molson Canadian ($43.95).
Yet even now Air Canada and a host of other companies have a fuel surcharge.
“Each market is different and fares and carrier surcharges go up and down constantly,” Fitzpatrick told the Toronto Star in an email.
When booking an overseas trip online, the add-on is folded into the upfront ticket price and lumped together with other fees in a category called “Carrier Surcharges.”
For a roundtrip economy-class flight from Toronto to London, England, those extras can amount to a few hundred dollars.
Fuel remains the airline’s largest expense, Fitzpatrick said.
Air Canada spent $1.8 billion on fuel in the first nine months of 2015, which represented 21 per cent of their operating expenses. That’s down from $2.6 billion in the same period the previous year, according to their latest financial statements.
Although consumers have seen the price of gas drop at the pump, they shouldn’t expect to pay less for air travel anytime soon, said Ambarish Chandra, an economics professor at the University of Toronto.
For one, airlines tend to lock in their prices for jet fuel a long time in advance to insure against spikes, so they don’t necessarily save money right away when energy prices suddenly fall, he said.
But the main reason is there isn’t enough competition among Canadian air carriers to drive fares down, he added.
“In the absence of competition these firms will keep their prices as high as possible for as long as possible,” he said. “Also consumers have gotten used to these costs, and they’re not necessarily shopping around as much as they should. It’s totally in the airlines’ interest to keep prices as high as possible regardless of the price of fuel.”
Air Canada’s two domestic rivals, WestJet and Porter, say they don’t charge extra for fuel, but their prices are comparable.
Air Canada has blamed the weak loonie for keeping its fuel surcharge, saying it has to buy fuel and aircraft with U.S. dollars.
But Chandra says their argument doesn’t hold up because the price of oil has fallen much more than the loonie has.
The Canadian dollar has decreased in value by about 11 per cent compared to the greenback since January 2015, whereas the price of benchmark WTI crude has tumbled more than 40 per cent – from about $48 a barrel toaround $30.
With almost every major carrier in North America seeing record load factors – a technical term for percentage of seats sold per plane on average – there is little or no incentive to reduce prices, said Jason du Sautoy, executive director of the travel agency Flight Centre Canada.
“Who wants to blink first and get rid of surcharges to gain market share, and then attempt to bring them back again later?” he said.
Because fuel surcharges are spread out across a wide variety of transportation sectors – including municipal taxis, that aren’t even under federal control – it would be difficult for Ottawa to regulate, said a spokesperson for the federal department of innovation, science and economic development.
The silence in Ottawa when it comes to fuel surcharges is “deafening,” said Dan McTeague, a former Liberal MP and senior petroleum analyst with GasBuddy.
“I think this is a wake-up call for companies that continue to hold those fuel surcharges to provide a modicum of transparency, because there is, in my view, very little if anything to justify the retention, except for making a tidy little profit.”
– With files from Bruce Campion-Smith