News

Air Canada goes for all-in

pricing
May 12, 2015
by Ian Putzger

MONTREAL, Que.In July North American customers of Air Canada Cargo will find
their invoices slimmed down. Effective July 6 the airline will stop listing surcharges for
fuel, security and traffic control (navigation) separately and quote a simplified, allinclusive rate instead.
The simplified rate structure will apply to all shipments moved on Air Canada from
any point in the Americas, covering domestic as well as transborder and international
routes. It applies to general cargo as well as special services for perishables,
hazardous materials and other types of freight that requite special handling.
Air Canada joins a number of airlines that have abandoned clearly identified
surcharges for all-inclusive rates in recent months. Emirates Airlines was the first to
go down that route in January, followed by Qatar Airways and IAG (formerly British
Airways and Iberia).
Vito Cerone, director of marketing and sales, the Americas for Air Canada Cargo, says
that the airline started working on this scheme before the other carriers made their
announcements.
We have been working on this for a while. We looked at how we could simplify the
way of doing business. This is one element, he comments, adding that the move
was prompted by discussions with customers.
Over the years forwarders and general sales agents have repeatedly criticized the
separate surcharges levied by airlines, which have represented charges that they had
to collect from their clients without compensation for their effort. Moreover, some

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have argued that fuel prices were not likely to drop back to levels seen when
surcharges were first introduced and should therefore be folded into the general
rate.
Not all forwarders are happy about a move to all-in pricing, though. Some cargo
agents have used surcharges to beef up their margins. Dirk Steiger, managing
director of airfreight consulting firm AAA Advisory, notes that some forwarders have
billed their customers for surcharges based on the published charges of some
carriers while actually moving the shipment on another carrier with lower
surcharges.
They would not be able to do that if all airlines went to all-in pricing and no longer
showed how much they charge for fuel and security, he remarks.
The shift to all-in prices also poses problems for forwarders who have signed
contracts with shippers (usually large ones) that include a separate fuel surcharge
element based on some fuel price index or other.
Cerone is aware of the problem. We all know that some customers have agreements
with some of their customers that involve an index-based fuel surcharge. We are
going to work closely with our business partners to help them with these issues. We
are not going to leave them hanging high and dry, he states.
Rich Zablocki, vice president in charge of the transatlantic trade lane for CEVA
Logistics, says that big shippers are unlikely to move away from a fuel index to
account for oil price fluctuations in their overall airfreight rates.
At this point many forwarders are waiting to see how they should respond to all-in
price moves, says a senior executive of a large multinational forwarder privately. One
big question is whether or not large carriers out of Asia will move in the same
direction, he adds. Unlike in Europe or North America, there are significant
differences in fuel surcharges from one airline to the next, in some cases as much as
50 cents per kilo, he points out.

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Some large international airlines have expressed reservations about all-in pricing. At
least for some time, forwarders are bracing themselves for a mixed landscape where
some airlines charge all-in rates while others continue to break out surcharges. It is
going to be an administrative nightmare, the multinational forwarder executive
predicts.
Air Canada Cargo has no set schedule to roll out its simplified pricing structure
throughout its network, according to Cerone. Such moves will be decided market by
market after consultation with customers, he says.
Zablocki wonders how the recent rebound of the oil price is going to affect airlines
stance.
Will we see fuel surcharges come back into play if there is more upward movement
in the oil price? he asks.
After the first airlines moved to all-in pricing a few months back, some forwarders
complained that their rates seemed to lock in fuel charges at a higher level than
current kerosene prices. They suspected a cynical ploy by the airlines to avoid an
adequate drop in fuel surcharges. A return to the former mechanism would reinforce
such suspicions.

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