Based on information published by the Mail & Guardian the Department of Trade and Industry believes there may be a case for an inquiry by the Competition Commission into the airline industry.
Many major airlines, including SAA and BA, hide their real airfares behind so-called taxes, the majority of which are actually fuel levies that form part of the day-to-day operations of an airline and have nothing to do with airport duties or government taxes.
Nimrod Zalk, chief director of the industrial policy enterprise and industry development division at the department, says that the manner in which airlines charge and price for fuel levies could warrant an investigation by the Competition Commission along the same lines as the banking enquiry.
He says the practice as explained by the M&G shows that airline pricing is deliberately opaque to the detriment of the consumer. Moreover, there are concerns that the method of publishing prices is misleading, as consumers are led to believe that these additional fees are a direct result of government taxes.
Zalk says questions have to be asked about whether the fees charged as a fuel levy are justified given the dramatic fall in the oil price. M&G research showed that for some airlines the fuel levy is 300% higher than the levy charged when the oil price was at similar levels four years ago. Zalk says that under the Competition Commission Act a company can be found guilty if there is an abuse of dominance through excessive pricing.
Further investigation by the M&G shows that airlines have a more transparent option in how they charge for fuel levies. Although it was argued that because of antiquated ticketing systems airlines had no option but to include the fuel levy in the tax box on the ticketing system, airlines can make use of the Q surcharge option. This option incorporates the fuel levy into the price of the ticket, making it more transparent for customers and easier to compare prices.
Amadeus and Galileo, the two main Global Distribution Systems, have confirmed that the system allows for the Q surcharge facility to be used for fuel levies. Furthermore, this option was raised by the travel industry at the time of the introduction of the fuel levy.
In 2004, in response to a concern about the introduction of a fuel levy, the International Air Transport Association (Iata) wrote to the Group of National Travel Agents’ and Tour Operators’ Associations within the European Union, saying that “Iata is not recommending the use of the ‘tax/fee/charge’ box(es) for the collection of any surcharges. We continue to advise that the only methodology for the collection of surcharges is to file them as part of a carrier’s tariff, which will then be correctly priced when that carrier’s tariff is selected and will appear as a ‘Q’ in the fare calculation area”. The letter also states that “we continue to advise that … the ‘tax/fee/charge’ box should only be used for the collection of bona fide taxes, fees and charges that are remitted to third-party government or airport entities”.
In response to questions by the M&G, SAA says each carrier has opted to implement what best suits its needs. “Airlines are therefore collecting the fuel levy differently, and SAA collects it as a YR [tax] levy separate from the ticket price. In some instances government dictates the way this must be collected, which includes routes to Israel, New Zealand and Argentina.”
Comair says that it is not aware of the Q surcharge option but will look into it as a matter of priority. Emirates does not charge a fuel levy and rather prices the cost of fuel into its ticket price.
Apart from a need for greater pricing transparency, frequent flyers who redeem air miles have been prejudiced in having to pay for a fuel levy that should be included in the ticket price. Comair, which operates BA locally, says it has formally requested that BA waive the fuel levy for redeemed air mile tickets.
Locally the Advertising Standard Authority of South Africa (Asasa) is reviewing the way travel agents advertise airfares in light of the high “taxes”, which are usually not advertised. Cornè Koch, communications manager at Asasa, says the organisation is reviewing additions to Clause 19.2 of Section II of the Code of Advertising Practice relating to pricing policy and that is has received a proposal from the Association of South African Travel Agents (Asata) for additions to the clause concerning advertising prices for travel packages. Asata recommends that the full price of the air ticket be advertised including the fuel levies. Asata says it issued its own guidelines in 2006 for its members to advertise all costs, but this applies only to its members and not other agencies or the airlines. This leaves its members at a competitive disadvantage when advertising offers.
BA gets to eat its cake
Customers should be particularly aware of non-refundable tickets issued by BA.
Despite lumping the fuel levy with taxes so that it does not form part of the ticket price, when it comes to refunding customers BA claims the fuel levy is in fact part of the basic ticket cost.
For example, if a customer books a non-refundable R3 000 return ticket from London excluding taxes and surcharges, the customer can expect to lose R3 000 if he or she cancels.
BA, however, does not pay back fuel levy of about R2 400, which would have been charged if the customer took the flight.