As oil plummets, fuel surcharges persist
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Jan 27, 2016  |  Vote 0    0

As oil plummets, fuel surcharges persist

Airlines and other companies continue to charge extra for fuel although the price of oil has hit a 13-year low


Airlines aren’t the only companies that pile on a fuel fee.

Canada Post

It first slapped a 2.25-per cent surtax on the delivery price of parcels and packages in the spring of 2003. It’s been there ever since.

“The continued escalation of fuel prices has significantly raised the costs of transportation and that's a big part of our business, obviously," said then-Canada Post spokesman John Caines. He told reporters the company might lower the surcharge if fuel prices drop.

Today, the add-on is 9.25 per cent on express service, 4.25 per cent for non-express and 2.25 per cent for Priority WorldWide service. It is calculated monthly and pegged to the price of diesel using measurements by MJ Ervin & Associates, an independent firm.

Canada Post’s competitors, Fed Ex and UPS, also have a fuel surcharge. That earned them a spot on Consumer Reports’ naughty list of companies last year.

Airport limos and taxis

Taxis and limos serving Pearson Airport began to charge based on the average price of gas per litre in 2008.

Their surcharge ranges between nothing and $5 per trip depending on an average price of a litre of regular gas over the last three months.

“With an ongoing drop in fuel prices the surcharge has dropped to $1 per trip,” said Shabeen Hanifa, a spokeswoman for the Greater Toronto Airports Authority. “The GTAA continues to work closely with the taxi and limo group to monitor costs and adjust surcharges accordingly.”

In the city, there is no specific fuel surcharge for cabs, but the meter rate went up in 2008 at the industry’s request because of increasing gas prices, said Tammy Robinson, a city of Toronto spokeswoman. The fare was reduced by $1 on Nov. 1 of last year.


The Freight Carriers Association of Canada recommends a fuel surcharge for the trucking industry, but each company sets their own rates.

Trucking companies have had a fuel surcharge since the early 2000’s, according to Marco Beghetto, a spokesman for the Ontario Trucking Association.

In a 2005 interview with the Star, the president of the Toronto-based trucking firm JD Smith and Sons Ltd said trucking companies depend on fuel surcharges for their survival.

"It's either recover the cost of fuel or you won't be running," Scott Smith said.

In an interview on Tuesday, he said fuel continues to represent a significant expense.

“I think the main thing is that the surcharge has been coming down as fuel prices have come down,” he said.


Canadian Pacific and Canadian National impose a fuel surcharge based on the average price of U.S. Energy Information Administration diesel.

Until the end of January, the fuel surcharge at CP for a bulk shipment of coal, grain, sulphur or fertilizer is 1.5 cents (U.S.) per mile, less than half of what it was in December.

At CN, the add-on is 4.6 cents per mile for bulk goods and about the same for carloads. The rates will drop to less to than one cent in February.


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

Toronto Star

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