Outside the travel world, everyone’s marveling at the prospect of a Facebook IPO, which could be valued at as much as $100 billion. So, what are we missing while we fawn over Mark Zuckerberg’s creation? How about the slow, stodgy, ugly airline industry. Known for a painful user experience and a steady decline of free features, the likes of Delta and American Airlines are outdoing the hottest online property in the world simply by annoying their customers.
According to data from the U.S. Department of Transportation‘s Bureau of Transportation Statistics, baggage and reservation change fees brought the U.S. airline industry a whopping $5.7 billion last year. Delta picked up close to a billion dollars on baggage fees alone, which doesn’t include what they yanked from the wallets of soldiers returning home from combat. The largest airline in the country also brought in approximately $700 million from reservation change fees.
American Airlines, the fourth largest airline in the United States, came in second in both categories, with $580.7 million in baggage fees and $471.4 million in reservation change fees.The particular beauty of these fees is that they are basically found money. Some passengers need to check bags, and the airlines have to invest in the overhead required to meet this demand. It’s an expense that can’t be avoided. With this fee, they monetized what they’d have to pay anyway. The same is the case for reservation change fees.
The top five earners of baggage fees in 2010 are:
1. Delta: $952.3 million
2. American: $580.7 million
3. US Airways: $513.6 million
4. Continental: $341.6 million
5. United: $313.2 million
Unsurprisingly, the top five earners of reservation change fees don’t look much different:
1. Delta: $698.6 million
2. American: $471.4 million
3. United: $321.5 million
4. US Airways: $253.1 million
5. Continental: $237.4 million
No doubt, activist groups will be up in arms shortly. And airline employees will lament the fact that their executives are so richly compensated while they have endured round after round of pay cuts and layoffs for years upon years.
Frankly, I offer my congratulations to the airline industry. Yes, they are soaking us. Passengers are a captive audience, particularly on routes with limited coverage, and we sometimes have no choice but to pay. The airlines are using this to generate profitable growth for their shareholders, which is their primary responsibility.
So, what about Facebook? The company is estimated to pull in revenues of somewhere above $4 billion this year, most of it from advertising. It is pretty interesting that the popular social network is annoying its customers as a way to generate revenue, just like the airlines!
Who knew that pissing off your target market was an awesome business model?
[photo by Tobin Black via Flickr]