Virgin Australia says it will reduce US airfares by up to $50 and roll the fuel surcharge into base fares in response to falling jet fuel prices.
The $680 fuel surcharge which the airline currently applies only on its flights from Sydney and Brisbane to Los Angeles will no longer be applied as a separate line item in the ticket, but instead be rolled into the base fare.
As of Friday January 23 that base fare will drop by $50 for travellers on a business class return ticket to Los Angeles, and $40 for economy and premium economy.
Virgin says the cuts are sustainable because it expects fuel costs to remain at their current low levels.
"These reductions reflect the benefits of the decline in global oil prices along with the negative impact of the depreciating Australian dollar," the airline explained in a statement.
ACCC investigates fuel surcharges
The Australian Competition and Consumer Commission is now investigating airline fuel surcharges, which have not fallen despite the cost of jet fuel plummetting from around $US107 a barrel in July to under $50 a barrel this week, to sit at its lowest level in almost six years.
"We are looking at what has been said and done at various times in relation to the fuel surcharges," said ACCC chairman Rod Sims last week.
"It is not against the law to introduce a surcharge – what is against the law is to mislead customers."
Virgin's move will undoubtedly put pressure on Qantas and its partner Emirates to reconsider their own fuel surcharges.
Qantas currently adds a fuel cost of $390 one-way business class fares to the US, with $340 for economy and premium economy fares to the US.
Flights to the UK and Europe see a $540 fuel surcharge in first and business class, $385 for premium economy and $285 against an economy ticket.
Qantas: "Oil doesn't fuel our profit"
Qantas has repeatedly stressed that although it is now flying back into profitability the decreased fuel costs play only a small part in the rebound.
Analysts suggest that every dollar-per-barrel fall in oil price lands Qantas a $36 million increase in pre-tax profit.
In November last year, Qantas exec Gareth Evans – then the airline's Chief Financial Officer and soon to be crowned as CEO of Qantas International – told Australian Business Traveller that add-on fuel surcharges go nowhere near towards covering the airline's multi-billion dollar fuel bill.
"Fuel prices have risen dramatically over the last ten years, it's gone from $40 a barrel to $120 a barrel, so our fuel bill has gone from $2.5 billion to $4.5 billion" Evans said.
"While we have from time to time increased the fuel tax across that period, those surcharges don't come close to recouping the fuel price increases that we've seen."
"We will need to see a substantial and sustained drop in fuel prices before we consider reducing our fuel surcharges."
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