Four days after the conflict between Israel and Iran began, oil prices are rising. The price of the benchmark barrel of Brent crude is approaching $75, compared with just $62 at the start of May.
Oil powers the vast majority of the transport industry – from aviation to cruise ships – and fuel comprises one of the biggest costs for operators. So what could the surge in the oil price mean for travellers? These are the key questions and answers.
Why is oil getting more expensive?
Because buyers are concerned about a reduction in world supply: both from a reduction in Iranian production, and the possibility that the government in Tehran might blockade the Strait of Hormuz. A significant amount of the world’s oil is carried on tankers through this narrow passage between Iran and Oman. Basic economics mean that when supply is reduced and demand remains stable, the only way is up for prices.
What will it mean for airlines – and fares?
The oil price rise alone is unlikely to have much of an impact over the coming months, because most airlines “hedge” the majority of their forecast energy requirements: they enter into financial deals to lock into a fixed price for a certain quantity of fuel.
The increase in route distances flown by long-haul planes due to airspace closures, particularly between Europe, the Gulf and Asia, is pushing up current costs.
Will I have to pay a surcharge on my summer flight?
Almost certainly not. Long term, there will be an impact on fares. Airlines may represent that with an increase in the so-called “carrier-imposed surcharge” that British Airways, Virgin Atlantic and others include in the breakdown of the ticket price.
During previous oil price spikes, airlines have added fuel surcharges. Crucially, though, I have not heard of any passengers who have paid in full for their tickets – which, these days, is almost all of us – being asked for any more cash except when taxes rise unexpectedly.
What about summer holidays?
Under the Package Travel Regulations, tour operators (the company that organises the holiday) is allowed to ask for more money if “the price of the carriage of passengers resulting from the cost of fuel” has risen.
But this can only happen 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”. So if you have less than three weeks before your trip, the price is unlikely to rise.
Can I ask for justification?
Yes. The organiser of the holiday must provide proof of its “clearly and comprehensibly” together with a calculation of how the surcharge for each customer is arrived at.
Simply asking for extra because of unspecified fuel costs without giving any details of what has changed is insufficient. It is reasonable 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 if the tour operator is an Abta member.
