The Smage noted yesterday that barbarian-friendly Australian airline, Qantas, is on track to surpass its record $914 million pre-tax profit this year, courtesy of an easing fuel price and persistent burgeoning fuel surcharges.

Since increasing its surcharges yet again last August, it is estimated that Qantas reaps $370 in fuel surcharges for every return trip to the Europe and $290 for return flights to the US.

The fuel surcharge has compounding benefits. Obviously, it allows Qantas to charge more for flights, while effectively advertising a lower headline price. Second, it allows the airline to pay less commission to travel agents (so important that travel agents are now suing Qantas) and significantly lessen the value of frequent flier points (a so called “free” frequent flier trip isn’t free at all – punters pay as much as $300 in surcharges and “taxes” merely to go to Singapore using points).

Even worse is the fact that in Australian dollar terms, oil isn’t even that much more expensive than is was back in 2000 – when there was no fuel surcharge (the surcharges weren’t introduced until 2004). In November 2000, the average price of crude oil was US$31.16 per gallon. However, in Australian dollar terms, the cost was around AUD$60 per gallon (with the Australian dollar buying around US$0.52). Currently oil is trading at less than US$55 or around $AUD70 per gallon.

That means, in the last six years, oil prices have only increased in Australian dollar terms by an average of 3% each year – around the annual inflation rate. Hence, Qantas’ fuel “surcharge” is really a de facto price increase which flows straight through to its bottom line. Unsurprisingly, Qantas profits have risen from $415 million for the 2001 financial year to an expected $900 million plus this year.

Much credit has to be given to Geoff Dixon and Qantas CFO Peter Gregg for managing to hoodwink everyone from politicians (perhaps the AFRs are being hidden in the Chairman’s Lounge), the ACCC and the Australian public that Qantas needs fuel surcharges due to high oil prices, all the while the company has skilfully doubled profits in the last five years. It is no wonder Texas Pacific and Allco are so keen to have Dixon and Gregg on board the LBO.