In the interest of some intelligent debate on this topic I feel compelled to respond to this. These are my personal views and not necessarily those of my employer.
Let me start by saying I think all surcharges, taxes, airport fees etc. (i.e. all those things you cannot avoid when booking a ticket) should be included in the ticket price. I would not put credit card fees in this category only if payment by direct transfer or paypal or the like were available, but if a company does not make these alternatives available it should not be able to surcharge for credit cards. So, notwithstanding that fuel should be rolled up into the one ticket price, let's talk about how that ticket price should move in relation to fuel prices.
Firstly, very few airlines actually pay the spot rate due to the use of fuel hedges. Hedges have many different structure and timeframes - it's a complex business. But let's say there is a simple hedge which just locks in a fixed price for a certain time - just like a fixed rate mortgage. I took out my mortgage two years ago and at the time it was widely expected that interest rates would go up. So my fixed interest rate was higher than the prevailing variable rate. The analogous situation for airlines is that as soon as they take out hedging on the belief that fuel will go up, they immediately start paying more for for their fuel than the spot price. With the latest interest rate cuts my fixed interest rate is now rather higher than the variable rate. An airline that has our simple "fixed price" hedge in place would still be paying more for its fuel than the spot price. So naturally this is reflected in the fuel component of its pricing which stays up even when the spot price has fallen, until the hedges and their associated costs expire.
For a year and a half there I was in the money, laughing at the interest rate rises as my mortgage payments stayed constant. But fuel hedges are not so perfect, and most airlines still had significant exposure to upwards oil prices and the surcharges in most cases (certainly Virgin Blue's) did not fully cover the increased cost of fuel. We could not raise surcharges (or ticket prices) as much as fuel because it would have meant empty aircraft which would mean grounded aircraft. Airlines absorbed the extra (unhedged portion) costs at the time, but those costs have to be recovered somewhere - airlines that don't recover their costs end up like Ansett. One method of recovery is to keep surcharges (or higher ticket prices) in place after fuel prices fall. So fuel surcharge (ticket prices) have acted as a buffer between supply and demand.
In summary there are two good reason why airline pricing should not necessarily move in lock-step with fuel prices. First the prices airline actually pay for fuel do not match spot prices, due to hedging which is used to "smooth" costs over time. Second, fuel prices are highly volatile and if airlines under-recover in the peaks they need to be able to over-recover in the troughs to maintain average/normal profitability - that is to smooth revenues over time.
I don't recall these journalists screaming hysterically "the airlines have not put their fuel surcharges up enough to cover the cost of fuel" but that doesn't generate the easy headlines and mindless soundbite. It's much easier to whip up a crowd using negative issues than trying to educate people.
Now about the actual mechanism - the surcharge. Surcharges exist due to the old legacy airlines having to pay commissions to travel agents on the ticket price (excluding surcharges by definition), and that historically this commission was in the order of 10% for long haul. Quite simply travel agents would make windfall gains for doing nothing (and ticket prices increase even more) if ticket prices rose due to fuel. Now that commission rates have fallen (in fact the whole incentive payment structure to agents has changed) and direct distribution has increased, the effect is not as large but it is still there. I think all airlines would be open to suggestions to stop travel agents and credit card acquirers from raking it in when ticket prices skyrocket due to fuel and adding an additional layer of cost, but it is up to airlines to solve this. As an aside it was amusing to see AirAsia claim to be the first airline in the world to drop fuel surcharges - conveniently overlooking the fact that airlines such as Ryanair never had them in the first place. But Ryanair does about 99% of its business through its website and doesn't use agents at all. Before you get too excited remember it does not have a frequent flyer program either.
Notwithstanding all the above, I know it aggravates frequent flyers to have to pay "fuel fines" when redeeming award seats. Evidently if fuel prices were just factored into the ticket price then this would be reflected in the increased number of points required to redeem a seat using any-seat rewards. I think the trend is to make "fuel fines" and "taxes" payable by points anyway, which is going to result in the same effect. But rest assured, if airline costs go up due to fuel, they will seek a way to recover it through pricing for frequent flyer redemption seats just as for seats sold through other channels.
cheers
CrazyDave98
