Fuel price volatility forces rethink of all-in rate strategy

There is likely to be a major rethink amongst the airlines about the trend to “all-in” cargo pricing, according to Alwyn Rautenbach, executive manager of Airlink Cargo and chairman of the Air Cargo Operators’ Committee (Acoc). This, he told FTW, was likely to be triggered by the massive drop in oil prices, and the associated reductions in aviation fuel costs. Fuel surcharges, according to Rautenbach, were originally put into practice some years back because of the volatility of oil prices. “But,” he added, “there had been stability in prices at about US$105- 114 per barrel for Brent crude for quite a long time.” And this, in turn, led to the increasing talk and occasional action on airlines implementing all-in pricing. However, Rautenbach said, things have once again reverted to a volatile situation. “And I reckon this will lead to a rethink.” But forwarders are still adamant that all-in pricing is the way to go, with the mention of surcharges being a very contentious subject. They have called for some considerable time for surcharges to be removed – claiming they were opaque and complex. And this made it difficult for forwarders to quote a definite price for air cargo transportation, which the shippers were able to understand. Given this, Fiata has welcomed statements by some airlines’ freight divisions announcing their policy to return to a simplified all-in rate structure that eliminates all these various surcharges, such as fuel and security. The body added that the simplification of rate structures would be a significant benefit to forwarders and shippers alike. Rodolfo Sagel, chairman of Fiata’s Airfreight Institute, was quoted in the international press saying that he believed this all-in move by certain airlines was “a long-awaited move in the right direction that may be supportive of transparency”. He also noted that Fiata believed that this could be the precursor to many other airlines following suit. Also there have been lots of murmurings in the freight trade media about the fuel surcharge having attracted significant criticism in recent months as fuel prices continued to fall. For example, grabbing the surcharge bone of contention was Paul Golland, chairman of the Australian Federation of International Forwarders (AFIF) and vice-chairman of Fiata. In a statement last week he questioned why, with fuel prices falling almost 50% a barrel, carriers had been so slow in reducing current fuel surcharges. “Whilst it is appreciated that the cost of aviation fuel is not on a par with standard fuel,” he added, “it is still a mystery as to why there has been no reduction in fuel surcharges.” Unfortunately, airlines have been absolutely non-responsive to this statement. But they have certainly answered the question posed in a slightly different form: When would customers see a reduction in rates, with the fuel cost having dropped so dramatically? They won’t, according to Peter Davies, former CE of Air Malta, because “…prices are market-driven not costdriven” – adding that lowering them was not necessarily the correct response to lower oil prices. Also, Airwise News quoted Ted Christie, chief financial officer at US low-cost carrier Spirit Airlines, saying that airlines had “very expensive systems and people thinking about how to maximise revenue, and they should do that regardless of the oil price”. But, benefiting from cheaper fuel after crude oil prices dropped 60% since June last year, the global airline industry is expected to report a near US$5-billion increase in profits this year to US$25bn. And so the bottom line thinking by the Davies and Christies of this aviation world has been challenged by politicians and consumer groups in the US and Europe. They have been calling in the press recently for airlines to cut prices. New York Senator Chuck Schumer, for example, called for a federal investigation last month into why lower fuel costs were not being passed on. But a consensus of aviation experts remained adamant that airlines were unlikely to cut prices following the dramatic fall in oil prices. And again, “volatility” was the main word bandied about in this train of thought. INSERT Forwarders have for some considerable time called for surcharges to be removed — claiming they were opaque and complex.