IAG Cargo to drop surcharges

IAG Cargo is the latest major cargo carrier to move to an all-in pricing structure.

When Emirates’ move to an all-in-one pricing structure for cargo at the beginning of the year was quickly followed by Qatar Airways, the obvious question was: “Will more carriers follow?” Which, of course, carried the subtext of “Can other carriers afford not to follow?” That is, with two leading cargo carriers offering pricing without surcharges, would forwarders and shippers demand the removal of surcharges by other airlines?

Whether today’s announcement by IAG that it will drop its fuel surcharges (FSC) and its exceptional handling charge (EHC), effective with the start of the Summer season, is just the first of many such announcements by carriers jumping on the all-in bandwagon remains to be seen.

One key factor in the decision to eliminate fuel surcharges was the dramatic fall in the price of fuel.  If oil is available at $50 per barrel, or less, and if that price remains stable, then, obviously, the need for a fuel surcharge is eliminated. But with prices beginning to edge up in the last two weeks, cargo carriers that were thinking eliminating their surcharge, will have had second thoughts.

But will oil prices continue to rise? A report today from Citigroup indicates that far from continuing to rise, prices may well drop to as low as $20 per barrel. But according to Citi, this price drop will only hold “for a while,” and will be followed by a jump to $75 toward the end of this year. And when you think about it, the reason for a fuel surcharge is not that oil (and therefore, fuel) prices are high, but rather to protect carriers from rapid changes in the price of oil. Changes which do not appear to be going away anytime soon.