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Watch out for fuel surcharges on reward flights

Airline fees devalue BA's credit card sign-up bonus

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Credit cards that offer travel rewards can be a convenient way to save up for an international trip. But beware the fuel surcharge, a fee imposed by some international airlines. If you're not careful, you could end up paying hundreds of dollars more than you expected for that rewards ticket to Europe.

Fuel surcharges are not a rewards issue when you're paying money for flights -- you earn as many points for the dollars spent on fuel as for the rest of the flight. But they become a serious consideration when you're cashing in miles for free travel, because you can't use points for the surcharges. You have to pay cash -- sometimes hundreds of dollars' worth.

One of the clearest examples of this comes from British Airways. The Chase British Airways Visa card has one of the most generous sign-up bonuses for would-be world travelers: 100,000 Avios points on offer through February. It appears at first to be a no-brainer: that's usually enough points for two free round-trip coach tickets to Europe, just for taking on a credit card. U.S.-based passengers should look carefully before they leap, however. You can get a lot for those points, but not free flights to Europe.

First, earning those 100,000 points requires significant spending. You get 50,000 points after spending $1,000 in the first three months, the next 25,000 points after spending another $9,000 within the first year, and the last 25,000 points for spending another $10,000 in the first year. The first year's annual fee is not waived, so you're also paying $95 for those 100,000 points -- which may leave you a little cranky when you realize they don't go far toward international flights. There are ways to use British Airways points that make sense, but ironically, they are usually limited to U.S. domestic travel.

Watch out for fuel surcharges on reward flights

That's because Avios points don't cover fuel surcharges, and fuel surcharges make up the bulk of an international flight cost on British Airways. Here's an example of just how expensive those surcharges can be: A round-trip flight on BA in February from Philadelphia to London's Heathrow Airport appears on Expedia for $861.30 -- in line with U.S.-based airlines. Examine fare details, however, and you'll see the flight listed at only $184, while taxes and "airline fees" cost a whopping $677.30.

Hefty fuel surcharges are not peculiar to British Airways. Nearly all European and Asian airlines add fuel surcharges on international flights. With a few exceptions, U.S. airlines do not. (See chart for details.)

Expedia shows a similar flight from Philadelphia to Heathrow on US Airways for $849 -- close to the BA fare, except US Airways' is listed as $661 for the flight, with taxes and airline fees only $188. Fuel surcharges are not listed. US Airways and United are the two U.S.-based airlines that never add fuel surcharges on any flights.

But if the overall price for the London flights is similar on both BA and US Airways, why does it matter if one charges more for fuel than the other? That becomes clear when you book those flights using miles. US Airways charges fees for international and partner awards but, all told, it rarely costs more than a couple hundred dollars to redeem an international award flight. The US Airways ticket to London, when bought with points, is nearly $500 less than the BA option.

Fee spotting
It used to be impossible to spot the BA fuel surcharges, but customer complaints and at least one class-action lawsuit have led to fuller disclosure. Search that flight to London on British Airways' website today and a list of "highlights" appears, including "no hidden charges, all of our advertised prices include taxes, fees and charges."

When you choose the cheapest economy-class ticket available, an itinerary appears with a price breakdown and a footnote: "The inclusive total of your ticket includes a fuel surcharge per flight levied by the carrier." Click on "more details" and a window comes up explaining airline fuel surcharges and government taxes and fees. "British Airways applies a fuel surcharge on all flights to reflect the fluctuating price of worldwide oil," the site states. "The surcharge is based on flight duration and applies to all passengers, including children and infants travelling on British Airways operated international and domestic services." The Chase website says that all reward flights are subject to fuel surcharges, taxes and fees of approximately $650 per person in economy class.

'Price of oil'? Hmm
Rewards experts say that "price of oil" justification is baloney. "Fuel surcharges don't exist because of the cost of fuel or because of mileage tickets," says Gary Leff, who blogs at View from the Wing. The practice evolved, he says, as a convenient way "for airlines to cheaply and quickly adjust prices across the board by adjusting their fuel surcharges. One change applies to every ticket sold on a route, rather than having to update every fare one by one." Attracting loyalty members and profiting on miles redemption became a nice side benefit.

So, is the British Airways card's 100,000-point bonus worth pursuing? Many miles aficionados say yes, but they're usually big spenders. "It absolutely is a great deal," Leff says. "You just have to understand how to use them."

You get more value for your Avios redemption if you book premium award seats on international flights, for example. Fuel charges do not increase if you book business- or first-class fares. You can also use Avios points on partner airlines that don't add fuel charges, including on U.S. carriers Alaska Airlines and American Airlines. The same goes for Germany's Air Berlin and South America's LAN. (Story continues below.)

Which frequent flier programs add fuel surcharges to award flights?
Airline awards programs Surcharge amount (not including other fees & taxes) Conditions for surcharges Exceptions
Aeroplan Varies by airline; $412 from Toronto to Europe on Air Canada Air Canada + most Star Alliance airlines that add them
No fuel surcharges on Aeroplan award fares for partner airlines Scandinavian, TAM, United, US Airways
Alaska Airlines Mileage Plan None for Alaska Airlines
N/A Fuel surcharges applied to AAdvantage award fares for partner British Airways
American AAdvantage None for American Airlines flights
N/A
Fuel surcharges applied to AAdvantage award fares on partner British Airways
British Airways Avios Calculated per flight segment depending on distance - $438 from JFK-London. Use Avios calculator
All international flights
No fuel surcharges on Avios award fares on partner airlines that don't charge them, including American, Alaska, Air Berlin, Aer Lingus, LAN
Cathay Pacific $124.50 for flights between U.S. and Hong Kong
Fares redeemed with Cathay Pacific or BA Avios rewards
No fuel surcharge on Cathay Pacific if you redeem with AAdvantage miles
Delta SkyMiles None on most Delta flights
Delta flights originating in Europe
Fuel surcharges applied to SkyMiles award fares on European & Asian partners that add fuel surcharges
LanPass None on LAN flights None
Fuel surcharges added on oneworld partner airlines that add fuel surcharges
United None None
No fuel surcharges on any award fares, including flights on partner airlines that add fuel surchages
US Airways None None
No fuel surcharges on any award fares, including flights on partner airlines that add fuel surchages
Virgin Australia $390 Los Angeles LAX to Sydney All international flights
No fuel surcharges if booked using Delta SkyMiles

Surcharges seeping into US
Fuel surcharges are slowly leaking into North America. Canadian rewards program Aeroplan tacks them onto most flights now. American Airlines doesn't add them to its own international award flights, but if you use AAdvantage miles to book a flight on partner British Airways, you'll get fuel-surcharged.

How long before U.S. carriers adopt the fuel surcharge on their own flights? Leff believes the merger of US Airways and American Airlines will buy us a few years. "Both programs are due to make some big changes in their awards programs, but the last thing they want to do at the beginning of a merger is alienate their frequent fliers," Leff says. "They're going to put off any big changes they might have made -- and if they're not going to make changes, United won't either. I don't see this sweeping the U.S. immediately, but I wouldn't make a bet on what happens five years from now."

See related: 8 credit card strategies of frequent flier mile pros, Taxes, tuition can rack up rewards, for a fee, Multiply reward points with prepaid and reload cards

Published: February 14, 2013


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