Why are the fees, taxes and surcharges on Avios redemptions so high?

Feb 15, 2022

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Earlier this week we learned the unfortunate news that the already high fees, taxes and surcharges on long-haul, British Airways premium cabin redemptions were increasing even further, without notice.

This means that if you are, say, redeeming a British Airways Companion Voucher for return business class flights to the United States, while you will only be required to pay the Avios for one passenger, you must pay the full fees, taxes and surcharges for both passengers, which may now be more than an eye-watering £1,500 total.

You may be wondering why these amounts are so high, and why they have increased. Let’s have a look at what you are actually paying for.

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Using ITA matrix, a return business class cash fare flight on British Airways in November is priced at £1,919.06 per person. This fare is made up of the base fare (the £489.50 + £639.50 amounts below), plus the fees, taxes and surcharges. If you are redeeming Avios you will not be paying the base fare (as your Avios will be used for this), but you will still need to pay the full fees, taxes and surcharges.

Related: What airline fare classes tell you about your ticket

You can see there are various line items classed as fees, taxes, charges and surcharges.

Fees

The fees from this fare are several small amounts charged by customs, immigration and airport operators at the both the origin and destination. These are charged to the airline by, for example, the United States Customs for the services they provide for travelling passengers such as customs inspections and these amounts are passed onto the passenger by the airline.

Taxes

The Government taxes, include the US International Arrival Tax which the US Government charges to all arriving passengers for a wide range of federal service related to travel including environmental protection and airport maintenance. You will also notice the Air Passenger Duty APD which the airline is required to pay for each passenger departing the U.K.

This is much higher than the U.S. fees and taxes and is a charge unique to flights departing the United Kingdom.

Related: Flying from the UK is about to get more expensive because of Air Passenger Duty increase

The U.K. has the highest APD of any country in the world and the longer the passengers flight and the higher the class of service the higher the APD charged. The airline must pay this for each traveller so again passes it onto the passenger. You can avoid this APD is you commence your journey outside of the United Kingdom (even if you connect via the U.K.). You may also find overall fares are cheaper on indirect flights from mainland Europe rather than direct flights from Heathrow.

These fees and taxes are mostly small amounts and do not together add up to the almost £800 in total fees, taxes and surcharges that make up this cash fare and therefore must be paid for an Avios redemption.

Related: 7 ways to use ITA Matrix to find your perfect flight itinerary

(Photo by Ben Smithson/The Points Guy)

Surcharges

By far the largest fee, tax, or surcharge is the ‘Carrier Imposed Surcharge (YQ)’ at a huge £500. This charge is exactly what it sounds like – an additional surcharge imposed by the carrier (British Airways). It is completely discretionary and 100% goes to the airline – it is not passed on to any airport or government agency.

So where does this large mystery amount come from?

The ‘YQ’ surcharge is commonly known as a fuel surcharge. Fuel is a significant expense for airlines and the global fuel prices can fluctuate significantly. While airlines are free to change their base fares as they see fit when placing them on sale, they do not have the same flexibility with Avios redemptions as the Avios required will remain the same regardless of whether oil is selling for $20 or $100 per barrel.

Airlines introduced and tinkered with this fuel surcharge to combat the rising cost of fuel many years ago. When oil prices increased, airlines increased fuel surcharges to compensate for their unexpected increased costs.

However when oil prices then decreased, airline were hesitant to decrease the surcharges. After all, it was easy money straight into their pockets for every cash or redemption fare.

The global price of oil plummeted during 2020 as the world locked down and millions, if not billions of people ceased travelling. Less travel meant less demand for oil and the price fell accordingly.

Crude oil global price in USD for the past five years. Data from Macrotrends

Unfortunately airlines like British Airways did not decrease their fuel surcharges when their fuel costs decreased. At the same time, they were haemorrhaging money elsewhere and demand for travel dried up.

In fairness, as you can see from the graph above the price of fuel has increased recently, which may explain British Airways most recent fuel surcharge increase. Had the airline continually adjusted their fuel surcharge to mirror fuel prices this increase would be understandable. Instead, BA have kept some of the highest fuel surcharges of any airline in the industry for year and they are now higher than ever.

The fuel surcharge is sometimes referred to as a “junk fee” by travel analysts as it is a fee charged to customers that does not have any real relation to the cost to the airline. BA could roll any fuel costs into the base fare where it does not need to be listed as a line item, though then this amount would not be recovered for Avios redemptions as the base fare is not payable for redemptions.

How to reduce the cost

You can reduce some of the cost of your taxes by commencing your journey outside of the United Kingdom. To reduce the fuel surcharge you could consider flying on a partner airline on the same or a similar route. Other airlines charge much lower fuel surcharges – you can use ITA matrix to check (look for the ‘YQ’ line item).

If you have transferrable points like Membership Rewards you can also choose to transfer them to programmes that don’t charge high fuel surcharges – for example Singapore Airlines KrisFlyer programme has much lower surcharges than British Airways Executive Club.

Related: Good news: Cathay Pacific gets rid of fuel surcharges for most regions

(Photo by javan/Twenty20)

Bottom line

British Airways is not alone in charging fuel surcharges – competitor Virgin Atlantic charge similar amounts on their transatlantic flights. Why? Because they can – it is fairly easy revenue for airlines.

While travellers can easily choose between different airlines for cash fares, when it comes to points and miles redemptions they are limited to the programmes they have the loyalty currency in. Even if global fuel prices drop, its unlikely airlines like British Airways will reduce their fuel surcharges. Consider these frustrating fees, taxes and especially surcharges charged as a loyalty fee for redeeming your points and miles for that “free” travel.

Featured image by Ben Smithson / The Points Guy

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