What is the fuel surcharge?

Fuel Surcharge is the cost that airline passes to the consumer if it's fuel hedging is insufficient to offset the costs of fuel.

Although more often then not it's a marketing tool for artificially keeping the fares low but not being "in the red" and since there is no regulation on the fuel surcharges the airlines are generally free to charge anything they like.

According to the article about Fuel Dumping on Hack My Trip:

Some airlines still include fuel surcharges in the base fare, and others may break them out only for certain routes.

So not all airlines use them, which means it can't be mandated by law. And why would there be regulation about individual components of an end user price. There is regulation (at least in some countries) that forces airlines to show end users the total price including all charges, to prevent false advertising .

The blog further states:

I think a better explanation is that airlines can easily adjust the cost of a ticket by changing just the fuel surcharge that applies to many routes between two regions without adjusting the base fare for each individual route as well as the dozen or so fare classes on each flight.

That's just some guy's theory, but it makes a lot of sense: basically the fuel surcharge is an administrative tool that simplifies the act of passing cost increases/decreases to the end user.

A fuel surcharge is part of the fare, itemize separately for purely opportunistic reasons. The airlines sets it as they see fit and gets all the money. It's not mandated by the government or transparently related to fuel prices (although I believe it was historically introduced to handle sudden changes in fuel prices).

Reasons to charge it separately include:

• Being able to update (increase/decrease) it across all fares at once, without messing with finely tuned fares, existing contracts, and insanely complicated legacy systems.
• Handling it separately for loyalty programs or booking change purposes.
• Being to advertise a lower price, while still getting more money at the end (not so common in my experience as I believe this is forbidden where I live).

A fuel surcharge is simply a mandatory fee charged by an airline, typically per-segment (per flight) and broken out of the actual fare for auto-pricing. For example, an airline may offer a fare from Seattle to Paris that is valid with multiple routings, e.g., SEA-LAX-LHR-CDG. The fare is published end-to-end (SEA-CDG), but the airline may impose a mandatory fee for each flight that is based on the flight distance or airports. E.g., the SEA-CDG fare might be $450, and they might impose a fuel surcharge of $500 for the LAX-LHR flight. Your actual cost (and the true fare) would then be $950 plus government taxes and fees. The airlines originally added fuel surcharges when the cost of fuel was going up rapidly and they didn't want to publish updated fares every day. These days, fuel is a fraction of what it cost then, but many airlines retain their high fuel surcharges.

Some airlines lump fuel surcharges in with taxes and government-imposed fees, but they are purely an airline-imposed charge that goes to the airline. One reason airlines love fuel surcharges is that they are technically not part of the fare. Many airlines have contracts with major companies and offer discounts which typically are calculated on the fare, so fuel surcharges are exempt. Also, airlines can pretend that the surcharge is a tax and thus you might blame "the government" for the high cost of the ticket.