Five airline fees you haven’t thought about (but they have!)

by Tom Johansmeyer on

Over the past two years, the fees that airlines have figured out have been seemingly endless. Baggage and cancellations are just the tip of the iceberg. Now, passengers are stuck with a healthy dose of fee fatigue, but the good news is that there doesn’t seem to be anything left for which to charge – except maybe access to the flotation devices in the event of an emergency.

Well, don’t get too comfortable.

Despite having had a fantastic year in 2010, there are already grumblings in the airline industry about increasing fuel costs. This means, of course, that the additional expense will have to be passed along to us, the passengers, in some form. Even though we may not be able to think of (realistic) charges to levy, it seems as though the airlines have this under control, according to an article on MSN Money. Already, 19 different a la carte charges exist, and they are set to earn the airlines $22 billion worldwide for 2010.

So, the airlines want more of your money. How are they going to get it? Well, here are five ideas for them:1. Pay to talk to someone: do you need to talk to a ticket agent, or would you merely prefer to do so? Don’t worry; this perk option isn’t going away. You will have to pay for it, though, according to Jay Sorensen of IdeaWorks, a company involved in tracking consumer trends. The good news is that the only people in line will be shelling out cash for the privilege, so you won’t have to wait too long.

Alternative: if you want to talk to someone that badly, and are willing to pay for it, try online dating.

2. Pay to tote your own bags: are you ready to pay to avoid paying check-in fees? Spirit is already doing it, and most airlines in the United States have said they aren’t going to head in that direction. But, American Airlines, United Airlines and US Airways, according to MSN Money, “essentially have,” calling it “priority boarding or choice seating.” If you get a better seat you have a spot for your bags on a crowded flight. Otherwise, you’re stuck hoping for the best.

Alternative: make friends with a frequent flier.

3. Pay to take your bags overseas: we’re getting used to paying for checking the first bag on domestic flights, but we’ve been spared the humiliation when traveling internationally. That could change, though, especially since there’s money to be made.

Alternative: there’s a Paris in Illinois, too.

4. Pay to deal with your kids: so far, an infant on your lap has gotten a free ride, but this discomfort could cost you. George Hobica, of AirfareWatchdog, thinks this one could be on the list for 2011. “If the government doesn’t act to ban lap children,” he told MSN Money, “we might see the airlines make a move.”

Alternative: birth control.

5. Pay to be like everything else: back when I had platinum status on one airline and gold on another (in the same year), I came to appreciate the benefits – and this was even before the ancillary fee trend took hold. Now, status is worth even more, because it alleviates some of this fee pressure. The MSN Money article mentions that the hit could be targeted at non-elite loyalty program members, but I wouldn’t be shocked to see even the airlines’ best customers lose some of the perks someday.

Alternative: buy on price instead of loyalty.

[photo by compujeramy via Flickr]

Airlines celebrate record profits with new fees

by Tom Johansmeyer on

If you were running a business that just pulled in record profits after two years of business hell, what would you do? Some companies would show their customers some appreciation. Others would find new lines of business or products in which to invest. The airlines, however, seem poised to jack up their fees.

Let’s face it: ancillary fees have been good to the airlines. Paying extra for food, checked bags and premium coach seating – not to mention cancellations – is the principal reason for the extra cash the industry pulled in last year. And having tasted success, the airlines want more.

According to a report in the Tampa Tribune, the prospect of increasing fuel costs is causing experts and analysts to forecast additional charges for passengers this year. Possibilities include a fee for paying with a credit card (a real gem since cash transactions are highly unlikely, especially online), using the web to make reservations and for talking to a human being to get a seat assignment. The first two are brutal, because passengers would be charged for behavior (a) encouraged by the airlines and (b) that lowers their operating costs.

George Hobica, founder of AirfareWatchdog.com, tells the Tampa Tribune, effectively, that it’s a defensive move, since “[a]irlines don’t want to go back in the red.”

It’s also consistent with the emerging strategy of finding new ways to charge customers without having to raise ticket prices.

According to Hobica, as many as 10 new fees could gain traction in 2011, some of which are in use already.

So, is it gouging or prudent business? That’s hard to say. Airlines are in the business of generating profits – they can’t be faulted for that. Customers have little negotiating power, so the whole line of desperate thinking that we can somehow prevail seems moot.

[photo by Lindsay_Silveira via Flickr]

Extra airline fees could mean better service! This is the FUTURE

by Tom Johansmeyer on

Soon, airlines could make all their profits on the extra fees you pay. Seriously. Yesterday, the Department of Transportation revealed that airlines have had their most profitable year since it started tracking the data back in 2002. And, a good chunk of revenue came from baggage fees, reservation change fees and ancillary fees. In the third quarter alone, it was good for more than $2 billion. So, the foundation is in place. All the airlines need to do is build on it.

And, it looks like some are trying to do that.

According to MSNBC, US Airways President Scott Kirby said that baggage fees and ancillary fees could add up to 100 percent of the airlines profits this year. We’re not talking about some future development, here. This is now. We’ve been talking for a while about how airlines are coming to rely on these fees. Last year, it was an issue of surviving the recession; this year, it’s been about driving profits. Regardless of prevailing economic conditions, it’s clear these fees aren’t going anywhere. It would stand to reason, therefore, that they’d become a larger part of airlines’ profits over time.

But, 100 percent? How would that work? Let’s take a look.First, think about the trend in reduced amenities, putting aside the weird stuff you read about this morning. Food isn’t free, and you’re paying for bags and premium coach seating (think exit row and bulkhead). This lowers airline costs on an available seat mile basis.

Now, what does it mean to lower costs? Well, it provides the elbow room to compete more effectively on fares – translation: cheaper tickets. So, in theory at least, this puts more butts in seats. The lower cost, however, erodes profit per available seat mile, because there isn’t as much revenue assigned to it.

This is where the fees come in.

If all you buy is a seat, you score! You’ll have the chance to get it for less than you would have paid otherwise. If you’re the kind of person who goes to the movies and sneaks in your own snacks, you’re all set. But, the minute you need something else, you’re going to have to pay. This is where the airlines can make their profits. Essentially, getting you into a seat becomes a marketing opportunity for everything you sell. Going back to the movie theater example, it’s equivalent to the previews you see that implore you to go out to the lobby and grab some popcorn. And, they can pump up the prices on food, liquor, bag-checking and so on to make up what they’re effectively giving away on a break-even seat.

Of course, this is a bit oversimplified, but you get the idea. The future of airlines may be to turn a cheap seat into an opportunity to up-sell you on everything else. Frankly, it isn’t a bad idea. In addition to making tickets cheaper, the flight attendants will need to sell in order to help the airline turn a profit. Sales without service is usually a fool’s errand, so a shift in strategy of this sort will lead to better passenger treatment. Maybe we’ll actually be treated like customers!

All these extra fees may not be such a bad idea after all. The airlines don’t realize this, but if they make all their money on the amenities, they’ll actually have to deliver an enjoyable experience.

Let’s pay less to pay extra and be treated like human beings in the process.

[photo by Augapfel via Flickr]

Airlines have best quarter ever … thanks baggage fees!

by Tom Johansmeyer on

Every time you pay to check an extra bag you’re making someone’s life better. The latest data from the U.S. Department of Transportation reveals that the third quarter of 2010 was the most profitable for the U.S. airline industry since the department began keeping score in 2002. The industry’s operating profit margin hit 10.5 percent in aggregate. Low-cost carriers, as a class, had an operating profit margin of 11 percent, its best performance since hitting 11.2 percent in the third quarter of 2006.

How did the airline industry pull this off? Recovering economic conditions helped, of course, but so did the stuff that passengers have gotten comfortable complaining about. More than $900 million in third-quarter revenue came from baggage fees, with another $590 million from reservation change fees. Then, there was another $646 million in ancillary fees. It all adds up to more than $2 billion for a single quarter.

So, while we’re all complaining about these extra fees, it looks like many of us are paying them, too.Spirit picks up the highest percentage of its revenue from ancillary fees at 26.9 percent, up from 24.2 percent in the second quarter of 2010 and 20.6 percent in the third quarter of 2009. Allegiant was next at 9.7 percent. Delta and US Airways derived 7.7 percent of their revenues from ancillary fees, with Southwest at 6.7 percent.

Of course, the money isn’t just going into the pockets of airline employees and executives. The six network airlines spent 25 percent of their operating expenses in the third quarter on fuel. United Airlines spent the most on fuel among network carriers – 25.7 percent of total revenue – with Allegiant leading low-cost carriers at 44.1 percent.

Before you feel too sorry for airlines when it comes to fuel costs, remember those profits. Four network airlines had double-digit operating margins, along with four low-cost carriers.

[photo by Tracy O via Flickr]

How much are you really paying for your plane ticket?

by Tom Johansmeyer on

We’ve heard airline employees gripe ad nauseam about how flying just isn’t what it used to be … because it’s so much cheaper than it was back in the glory days. True, we’re looking at a much different world post-regulation, but that was so long ago that it isn’t relevant any more.

So, what about today? Are airlines still getting hammered in the deal (as they contend), or are consumers giving ’til it hurts? The answer, of course, is somewhere in the middle.

You probably saw my story this week that puts plane tickets up 13.1 percent year over year for the second quarter, though it really just offsets a 13 percent decline last year. Nonetheless, the $341 average domestic fare is close to the 2008 peak of $346 and the third-highest average domestic fare attained since 1995 (2006 came in second at $342). It really does feel like we’re getting screwed.

Think again. Airline employees have a point, but only narrowly.


Adjusted to 1995-equivalent dollars, the average domestic fare this year is only $238. That’s a 20 percent drop from the $297 average fare in 1995. Over the past 15 years, the airline industry has lost a lot of ground. The peak, in 1995-equivalent dollars, was reached in 1999 ($302) and maintained in 2000 ($300) before the slide began. Even in this analysis, however, 2010 shows a marked improvement from the 2009 level of $213 (in 1995-equivalent dollars).

So, in pure cash, the airlines have been getting shafted. The industry’s position falls apart, however, when you consider the inclusion of ancillary fees, which are expected to be good for $8.9 billion in airline profits this year, according to IATA. The inflation-adjusted fare we’re paying doesn’t include the amenities we used to receive … and the airlines are generating extra income from what they used to include in the price of a ticket.

There’s no doubt that airfare is cheaper than it’s been in at least a decade and a half, but you’re not getting the value you used to.

[photo by Mr. T in DC]