Taxes and charges flying high

Matt O'Sullivan -May 12, 2012

By far the largest expense for an airline is its fuel bill. Photo: James Alcock

AS AUSTRALIANS gear up to fly overseas to escape the cold and take advantage of the high Australian dollar, they could be forgiven for asking how much of their ticket price is made up of government levies, airport fees and airline fuel surcharges.

The answer is: they can account for more than half the cost of a one-way ticket to London.

For years now, travellers have become accustomed to the annual apology from airlines that fuel surcharges will rise because of soaring oil prices or that airport fees are up because of their rising costs.

Passengers can be forgiven for getting lost in the detail, overwhelmed by the plethora of charges and taxes that make up their fares. But that doesn't stop them from asking whether fuel surcharges are a fair impost?

By far the largest expense for an airline is its fuel bill. Yet, while the high dollar makes an overseas holiday cheaper for travellers, it also gives Australian airlines a cushion against rising fuel costs because they buy fuel in US dollars.

The government's decision to slap on a big increase in the departure tax has again thrown the spotlight on the taxes, surcharges and other fees travellers have to pay, especially when they travel overseas.

Take Australia's biggest airport, which is regularly in the sights of the competition regulator.

When passing through Sydney Airport's international terminal, passengers are charged $47 by the federal government in the form of a departure tax - which will rise to $55 on July 1 - and about $51 by the airport for a ''passenger service charge'' on a return flight.

Of course, passengers won't feel the hurt of giving cash to airport authorities because it has been incorporated into their ticket prices. But brace yourself for an extra levy. It is almost certain that airports will pass on the cost of the government's decision, unveiled in the budget, to adopt a part user-pays model for the Australian Federal Police patrolling terminals.

Although the government will reap $118 million over four years, the direct financial impost on each of the airports, including Sydney and Melbourne, of the charges for policing is still to be quantified.

However, Melbourne Airport chief executive Chris Woodruff has admitted: ''The bottom line is air travel is going to cost more.''

As many well know, Melbourne Airport is cheaper to pass through than Sydney. As well as the $47 departure tax, passengers flying overseas face about a $4 ''safety and security charge'' and just over $28 for a ''passenger service charge''. It puts the total at $79 for a return flight via Melbourne, compared with about $98 from Sydney.

Airlines' fuel surcharges have long been a bone of contention

for travellers, too. The boss of Australia's largest travel agency, Flight Centre, says airlines tend to be quick to impose fuel surcharges when oil prices increase but not as hasty when they drop. ''It is a bit like the banks' interest rates,'' Graham ''Skroo'' Turner says. ''There is obviously pressure on airlines to make money and that is one of the ways they try to do it.

''But in the end the overall fare has to be competitive, so I don't think it makes a lot of difference. I think they think they can fool people, and it must work to a certain extent or they wouldn't do it.''

Turner says more airlines are tending not to break out fuel surcharges.

''But some airlines obviously feel that to compete they have to show the fuel surcharge separately,'' he says. ''Also, it is a way of adjusting what they pay to us midyear; if we have negotiated 10 per cent commission [on tickets], and then they increase the fuel surcharge halfway through the year, the extra fare we don't get the 10 per cent of.''

Qantas last increased fuel surcharges in March. So, now a one-way flight on a Qantas jumbo from Australia to London carries a $380 fuel surcharge, while on an A380 to the US it will be $340.

Qantas says its fuel bill is its ''biggest and most volatile operating cost'' and has the most rapid impact on fares. ''We use fuel surcharges to demonstrate this impact on fares to customers transparently,'' a spokesman says.

''When fuel prices last decreased significantly, during the GFC, we reduced surcharges appropriately.''

Virgin Australia charges passengers $310 in fuel surcharges for a flight to the US but does not impose them on tickets to Europe because of its strategic alliance with Etihad. The Middle Eastern airline does not impose fuel surcharges on routes to Australia, preferring to have an all-inclusive price. That doesn't mean it doesn't pass on the cost of high fuel prices - it just doesn't identify it in the ticket price.

So, are the imposts fair? Jet fuel prices have been at historical highs, hovering between $US120 and $US140 a barrel. And passengers are benefiting from stiff competition from state-sponsored Middle-Eastern and Chinese airlines, which is driving down fares on key routes to Australia. It means airlines, including Qantas, are losing money on long-haul routes.

And don't forget the carbon tax. Qantas and Virgin Australia will pass the cost of it on to passengers when it comes into effect on July 1. For Qantas passengers, the extra fees will range from $1.82 to $6.86, - depending on the length of the journey - while for Virgin flyers it will be between $1.50 and $6.

Also to cover Europe's emissions trading scheme, Qantas is charging passengers on flights between Australia and London or Frankfurt $3.50 each way.


Category: Taxes

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