Travel surcharges: Could holidaymakers be asked to pay more due to the slump in sterling?

Exclusive: Holiday companies can demand extra payments even after you thought you had paid in full

Simon Calder
Travel Correspondent
Thursday 20 October 2022 12:28 BST
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Unwanted extras: could your next holiday or cruise cost more than you expected?
Unwanted extras: could your next holiday or cruise cost more than you expected? (Simon Calder)

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Sterling has lost about one-sixth of its value against the US dollar since the start of 2022. The pound is also significantly down against the euro and almost all other currencies worldwide.

As a result, British travellers abroad are finding everything from coffee to car rental is more expensive.

Perhaps more surprisingly: before you go, you could be asked for extra payment even if when you have paid in full for your forthcoming trip.

But rules and practices provide some protection against excessive surcharges. These are the key questions and answers.

What’s the problem?

Holiday companies and airlines operating from the the UK incur a significant proportion of their costs in foreign currency.

Fuel for plane and cruise ships is priced in US dollars, as are aircraft leases. Hotels and car rental rates for the US are based on dollar prices. When sterling sinks by one-sixth, costs to UK businesses rise by one-fifth.

Many more destinations get more expensive too. Some nations lock their currencies to the American dollar. They range from Barbados and Bermuda to Hong Kong and the UAE.

Others are more loosely tied to the dollar. Tourist enterprises in Africa and Latin America generally price in US currency. So if the GBP:USD rate sinks, costs for UK travellers – and travel businesses – increase.

In Europe (and some nearby nations from north Africa to the Caucasus) the euro is the principle currency for tourism services. Again, sinking sterling means rising prices.

Can’t businesses “hedge” and therefore avoid rises?

To some extent. Airlines and holiday companies can insure against currency movements and fuel surges with “hedging” arrangements: an agreement to buy a certain amount of foreign currency or fuel at a specific price. Typically a UK airline will have separate hedges for its fuel and the foreign exchange to pay for it.

But hedging costs money, and many companies opt to cover only a proportion of their requirements. In addition, when oil prices are high and/or sterling is low, new hedges are not available at attractive rates.

Add in the longer routings that many airlines must fly to avoid Russian airspace, and the economics of travel have changed substantially.

What are the rules for holiday bookings?

Package holidays – when flights and accommodation are included in a single booking, as well as many cruises –are governed by the Package Travel Regulations 2018.

Tour operators (holiday companies) can apply surcharges if the costs they incur rise unexpectedly after the traveller books, so long as they:

  • Warn customers that such an increase may be made; most firms’ terms and conditions make this part of the contract.
  • Ask for the payment at least 20 days before the start of the trip.

What cost increases are allowed?

The rise can be only for these specified reasons:

  • “Price of the carriage of passengers resulting from the cost of fuel.” Typically this would be if an airline, rail firm or shipping company that is supplying transport raises the price.
  • “The level of taxes or fees … including tourist taxes, landing taxes or embarkation or disembarkation fees at ports and airports.” Unfortunately, these can move sharply upwards at short notice.
  • “Exchange rates relevant to the package.” At present this is

Can I ask for justification ?

Yes. The organiser of the holiday must provide proof of its need to surcharge. The law says: “A price increase may only be made if the organiser notifies the traveller clearly and comprehensibly of it with a justification for that increase and a calculation, on a durable medium, at the latest 20 days before the start of the package.”

That justification and calculation must be provided; simply asking for extra because of unspecificied currency fluctuations, fuel costs or tax rises, without giving any details of what has changed is insufficient.

It is lawful to withhold payment of a surcharge until clear evidence of the reason is provided.

Is there any limit to the surcharge?

Not if the organiser can demonstrate their costs have risen. But if the proposed surcharge is 8 per cent or more, then you have the right to get your money back.

Many surcharges turn out to be exactly eight per cent, representing an extra £80 on a £1,000 holiday. This is not surprising, as any higher and the traveller can cancel for a full refund – which is likely to be even more expensive for the holiday firm.

There is also a floor for tour operators who belong to Abta, the travel association: they must absorb the first two per cent of any increase. So you would not be asked for a surcharge amounting to less than £20 on that £1,000 holiday.

Is there any “undercharge” if costs fall?

Yes, under the Package Travel Regulations you are supposed to be entitled to a refund if the organiser’s costs come down. But I have never seen such a case.

I have a flight booked. Will I be asked for more money in order to fly?

Probably not. The general principle is that once you have paid, you will be flown according to your contract with the airline. The only circumstances in which airlines ask for additional payment, in my experience, are:

  • When taxes are suddenly imposed or increased by government.
  • Airport fees rise at short notice.

For example, easyJet says: “In the unlikely event that the government tax increases after you have made a booking, we may require you to pay the excess to enable you to fly.

“If we require you to pay the excess and you decline to do so, you may cancel your booking and receive a refund of the fare.”

Bookings through agents are more prone to price increases. Sometimes is because they have not yet ticketed the booking: ie a reservation has been made with the airline but has not paid for it and issued a ticket before an increase comes through.

In addition, unscrupulous agents may simply invent surcharges to boost their profits.

The fare breakdown on my existing flight ticket includes a “surcharge”. Why?

Because some airlines, including British Airways and Virgin Atlantic, choose to describe part of the overall fare as a “carrier imposed charge”.

The practice began in 2006, when British Airways took the “very regrettable” step of increasing its fuel surcharge on new bookings. As the price of oil hit $70 a barrel, long-haul passengers were faced with paying an extra £70 on a return trip.

“We have little choice but to pass some of our extra costs on to our customers,” the airline’s commercial director said at the time.

“We believe that it is better to be transparent with our customers by showing the level of fuel surcharge they are paying rather than hide the costs by raising fares behind the scenes.

“This approach would enable us to reduce the surcharge should fuel prices fall over time.”

When the price of oil subsequently halved, the extra charge remained. Since it was clearly no longer a fuel surcharge, it was rebranded as a “carrier-imposed charge. Virgin Atlantic adopted the same practice.

For most passengers, this arrangemnt is irrelevant: airlines are required to quote fares inclusive of fees, taxes and surcharges, and how they choose to break down the elements is of little concern.

On most routes competition decides the price level – so if an airline suddenly increases its “carrier imposed charge” by £50, the fare to New York will not suddenly rise by the same.

So who does the “carrier imposed charge” affect?

Frequent flyers redeeming points for “free” flights. They are expected to pay not just government taxes such as Air Passenger Duty, and airport fees, but also these “carrier imposed surcharges”. Currently on British Airways that amounts to £120 for a one-way flight from London to New York.

These surcharges diminish the difference between frequent-flyer reward flights and ordinary commercial fares – making loyalty schemes rather less appealing, and effectively devaluing the accrued miles.

Will flights and holidays get more expensive as a result of sterling’s weakness?

It is likely that air fares expressed in sterling will rise in the coming months as a consequence of the slump in the pound. But that won’t be because airline X or Y applies a specific surcharge: it will be because carriers keep a lid on supply.

By restricting the number of flights, they can push up prices in order to make their operations viable.

Package holiday companies such as Tui and Jet2 are well hedged for the coming year, which means you could usefully book a 2023 trip at not much more than 2022 levels.

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