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]

Five airline amenities making a comeback … and the one we want

by Tom Johansmeyer on

Wow, there’s a headline I never thought I’d write! Though I suspect it has little to do with actual customer demand – after all, the airlines don’t even call us customers – several are starting to bring small, small perks back into the cabin. Two factors help, of course: (1) they aren’t expensive and (2) airlines have shown solid profits this year (at least in the United States).

So, despite having to pay for extra bags and invoking ire at the mere request for orange juice, we’re finally going to get something back! What that is depends on where you are in the world, and some of these amenities are downright bizarre. But, the average passenger is probably at a point where even the slightest indication of humanity is incredible. We’re like hungry dogs, after all, and with these in-cabin perks, it feels like the airlines are waving a steak.

What are the airlines offering? Let’s take a look at five amenities, according to MSNBC:1. The “stretch bar”: SAS is installing a bar on some of its flights – and not the drinking kind. It’s an exercise rod that passengers can use to stretch out while on long flights. In continuing to cater to the vain, SAS is also adding mirrors to some seats, so you can make sure you look your hottest without having to leave your seat for a trip to the lavatory.

2. Lighting and sound effects: All Nippon Airways is using these tools to create “a calm cabin atmosphere that invites passengers to relax and rest,” MSNBC reports. The goal is to make flights more comfortable for passengers with late-night departures. The new “Relax” cards go with this – press a button and enjoy the lavender aroma.

3. Happy Moms: Asiana Airlines, based in South Korea, offers a “Happy Mom Service” at many airports, according to MSNBC, with a dedicated check-in line for families with small children. Nursing blankets, baby slings and baby seats are available on board the planes.

4. Locally-sourced booze: Horizon Airlines is kicking in free local wines and microbrews from the Pacific Northwest on its flights – even in coach!

5. In-flight wifi: since a relatively small number of passengers has been using this service, some airlines are seeking out sponsors and offering it up free to passengers. On Delta, AirTran and Virgin America, Google Chrome is ponying up the cash for free passenger use through January 2, 2011.

So, what’s the one amenity not being offered that would make flights so much more comfortable? How about an alternative to the lav for mile-high club membership? It’s not easy to pull off, and there has to be a better way than this.

[photo by PhillipC]

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]

Which airline made the most money on baggage fees?

by Tom Johansmeyer on

Last year, baggage fees were used by airlines to make up for lost fare revenue, as the recession kept people on the ground. This year, it’s just been a great source of extra revenue, as passenger traffic and fares are up – and the fees haven’t gone away. Almost all airlines are getting in on the action, some more egregious than others.

Well, data for the third quarter of 2010 is in, and we can finally take a look at who’s hitting us hardest … and for how much. The numbers will probably shock you. The top baggage fee-grabber owned close to 30 percent of the total baggage fees charged in the United States, a market that has reached $2.6 billion for the first three quarters of the year, and the top five dominate with approximately 80 percent of the total fees charged for bags, according to data from the Department of Transportation.

Let’s take a look at the top five airlines for baggage fee snatching (and then the rest):1. Delta Air Lines, $733 million: in fairness, Delta is the largest airline in the United States, so it’s to be expected that it will generate the most revenue.

2. American Airlines, $431 million: the third-largest airline hits the #2 spot for baggage fees, implying an aptitude for prying open customer wallets yet to be recognized by its competitors.

3. US Airways, $388 million: again, this is an impressive take, as evidenced by the distance between US Airways and Continental, in the #4 spot.

4. Continental Airlines, $258 million: this almost makes the airline look downright reasonable, especially when it’s year-to-date baggage fees aren’t even as substantial as what Delta raked in during the third quarter alone!

5. United Airlines, $239 million:

And, the rest:

6. AirTran Airways: $112 million

7. Alaska Airlines: $81 million

8. Spirit Air Lines: $56 million

9. Frontier Airlines: $44 million

10. JetBlue Airways: $43 million

11. Allegiant Air: $43 million

12. Hawaiian Airlines: $40 million

13. Virgin America: $27 million

14. Southwest Airlines: $23 million

15. Republic Airlines: $18 million

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16. Horizon Air: $13 million

17. Sun Country airlines: $9 million

18. Mesa Airlines: $2 million

19. Continental Micronesia: $2 million

20. USA 3000 Airlines: $2 million

[photo by The Story Lady 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]