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Wednesday, August 19, 2009

Fuel surcharge is *PROBABLY* coming back in October

If you are unfamiliar with Japan Airlines's fuel surcharge, it is based on the 3 month average jet fuel price and it is revised every three months. The next revision will be on October 1 2009. The three month average is USD71.41 per barrel so the surcharge will be the ones listed in zone B on this page, i.e. USD69 per US-Japan sector, IF they follow the old scheme.

Last month, ANA was considering not to re-introduce the surcharge or use a different scheme and charge a lower surcharge because the current ZERO fuel surcharge has stimulated leisure travel. However, ANA has announced today they will re-introduce the surcharge in October and charge the SAME level as before. The only difference is they will revise the surcharge every two months instead of three.

I think it is likely that JAL will follow the 2 month revision scheme due to the volatility of the fuel price. This will allow JAL to be more flexible and react faster to the latest market condition. They had done this with their cargo surcharge already. The cargo surcharge is revised every month and they actually will decrease the cargo surcharge in September.

A lower fuel surcharge might give JAL an edge against ANA. BUT if JAL has to raise the total ticket price to offset the ZERO or lower surcharge, then I would prefer JAL to keep the surcharge at ANA's level. It's not like the consumers are stupid. At the end all they care about are the total cost, not the individual charges. And if I understand correctly, JAL is going to receive 100% of the surcharge and the whatever percent of commission they give the travel agents are based on fare price (total ticket price - surcharge - tax). Which means JAL will receive a bigger share of the ticket price than before assuming the total ticket price doesn't change.

We will find out soon what the surcharge will be for October. But they do come back, redeem your award tickets now to save you some money!


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