French revolution in fuel surcharges
27 / 07 / 2008
BRAVE and progressive, or a crazy overcomplicated move set to fail. Industry opinion appears to be split on Air France-KLM Cargo’s recent decision to begin the process of rolling part of the fuel surcharge into the general rate.
There is no doubt that airlines have been coming under increasing pressure from large forwarders
to change the fuel surcharge mechanism.
The move is to be admired given the fact that surcharges can make up some 90 per cent of the total net price on some flights, a situation that is quite ludicrous and has had many GSAs up in arms for a number of years. It will also give the airline more flexibility on the price it charges for its services.
However, to introduce a new system that not only affects different currencies according to fluctuations, but also charges higher surcharges for longer flights is, without doubt, complicated and will take some getting used to.
Jean-Charles Foucault, AF-KLM’s senior vice-president, sales and distribution, explained the reasons behind the decision and how it will work in practice.
“The current mechanism is not sustainable. The oil base from which surcharges are calculated is from the past and does not take into account currency fluctuations, the length of the routing or today’s fuel price evolution.”
Foucault said that the surcharge would become zonal, with higher charges applicable on longer routes. On routes of more than nine block hours a standard rate, related to US$1.30, or its Euro equivalent, would be charged. On legs of four to nine block hours 80 per cent of the charge would be applied, with the remainder added to the general freight rate. On short-haul flights of less than four hours, 50 per cent of the surcharge would be levied with the other 50 per cent again applied to the freight rate.
For shipments in dollars there will be no change to the longest surcharge rate. However, in Euros thanks to the strength of the currency, some of the surcharge on even the longest routes, will be transferred to the general rate.
The box (right), provides an illustration of the new mechanism, which will come into force on
Reaction to the new mechanism has been mixed. Some GSAs welcomed the move, stating that rolling the surcharge into the rate was the only long-term solution. However, others said that it was overcomplicated, would require GSAs and forwarders to invest in new IT software and would be time-consuming and counterproductive.
Even Foucault admits the challenge of training its customers to understand and use the new mechanism by September, is a tough task.
Other airlines also called into question the viability of the system. A Lufthansa spokesperson said that it did not understand the logic behind the decision and that it had no plans to introduce a similar mechanism. However, British Airways admitted that it is “considering a change in the way it implements surcharges”.