Two billion reasons why you pay to check bags

by Tom Johansmeyer on

Or, you could call it “2 billion reasons why flight attendants shouldn’t get raises.” It works both ways.

The labor debacle at British Airways reminds us of the perpetual stupidity turmoil that has come to characterize the airline industry. Not to pick on BA, but the strike shows how disconnected the flight attendants are from the nuts and bolts of the business, and it translates across the pond. Yet, passengers are in a similar state of denial, feeling wronged by the airlines as they are nickled and dimed for “amenities” such as checking luggage. With the latest data from the Bureau of Transportation Statistics, it’s pretty obvious that airlines need to bring in some more money, and it has to come from somewhere.

In the United States last year, 769.9 million travelers set foot on planes (departing from, arriving to or completely domestic), a decline of 5.3 percent from recession-stained 2008 and off 8.2 percent from 2007, when 832.2 million passengers flew the friendly skies. This was the first time the number of fliers fell below the 800 million mark since 2004, in which 763.7 million passengers boarded planes. Think about it: 2009 is basically 2004. The airline industry has lost five years of growth.Meanwhile, fewer people were paying less for tickets, with the average fare falling $30 from 2007 to 2009 – settling at around $315. The increase in demand led to the shedding of around 700,000 flights from 2008 to 2009.

In all, this dynamic cost the U.S. airline industry approximately $2 billion … and that doesn’t include financial losses elsewhere. Fewer customers spending less led to a profound decline in revenue, and the airlines need to find a way to get it back. They’ve been able to close the gap, in part, through the ancillary fees we’ve all grown to hate. Every time you pay to check a bag, eat an unsatisfying sandwich or grab a little more leg room, you’re helping to keep these guys in business.

Of course, this would be a lot easier if the airlines would do their part. Price increases are frustrating when you see striking employees looking for more in a market where their salaries are effectively unsustainable. And with some flight attendants willing to subject themselves to interviews with 18 airlines in order to land a job, it’s pretty clear that demand is sufficiently high to make pay raises not only unnecessary but irresponsible.

So, it’s time for both sides of this equation to accept reality.

Passengers: you’ll be paying for extras. The airlines need it right now, and the beauty of momentum is that they’ll keep charging us for everything imaginable even when the economy recovers, because they aren’t going to slash a revenue stream that’s paying off.

Flight attendants: raises? Look at the economics of the situation. If passengers are paying more for the same service and demand is high for a shrinking number of positions, there’s no reason to pay them. With revenue in the tank and an aggregate net loss of $4.6 billion for 11 U.S. airlines last year, there’s no money for raises … unless there’s a new way to extract blood from a stone, of course.

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Fees passengers hate actually make sense

by Tom Johansmeyer on

I honestly don’t have much of a problem with all the extra fees being tacked on by airlines. They have an obligation to their shareholders to deliver results: it’s a fact of life. And, realistically, they don’t do us any good if they can’t afford to put planes in the air. But, I suspect I’m in the minority on this one. A recent online poll by Airfarewatchdog.com sought to learn which fee passengers hate most and found that 52 percent abhor having to pay to pick a seat. Only 14 percent had a problem paying for snacks. A mere 3 percent (my kindred spirits, I guess) said they were happy to pay for extra services.

George Hobica, Airfarewatchdog.com‘s president, observes that passengers are more tolerant of fees that come with an added expense to the airline. If you want a meal, someone has to pay for it. Sure, you’re going to pay more than the airline does – as you should – but there’s an understanding that the airline is picking up part of the burden. With seat assignments, he believes, the fact that there is no incremental cost is what irks passengers.

I see Hobica’s point, but there’s an opportunity cost for the airlines that isn’t readily seen by the average passenger. If there is a place for a fee that the airline doesn’t use, it’s potential income that can never be recaptured. Sure, there’s no additional cost to be covered, but there is the reality that the airlines aren’t monetizing something that could ease the pressure on their financial statements.

There’s a good reason for every additional fee you’re seeing: airlines don’t have a choice. Rather than push up the prices, this a la carte approach allows passengers to decide what’s important to them. Why pay for a meal you won’t eat … or for a “better” seat that won’t make a difference to you?

Airline recession will continue into 2010, good news for passengers

by Tom Johansmeyer on

The airline industry must be excited to see 2009 coming to a close. It was a year of route cuts, perk cuts and abuse from passengers over all kinds of sacrifices in the cabin … and a genuine commitment to fees for extra bags. The global financial crisis triggered in September 2008 hit the travel industry with extra severity, forcing airlines, famous for not being able to generate easy profits anyway, to scramble to keep their heads above water. But, at least there’s next year … not really.

While nobody with even shred of sense expected 2010 to be the year the airline industry went wheels up, the latest prediction from the International Air Transport Association is pretty grim. IATA expects the sector to lose $5.6 billion next year, thanks to higher fuel costs and revenue declines because of lower fares. This is worse than the $3.8 billion it originally forecasted. The number of passengers filling seats, IATA believes, will increase, but it won’t be enough to make a difference.

There’s good news in here. Continued brutal competition will keep fares low, so if you missed your chance to take that dream trip this year, you’ll have another bite at the apple in 2010. For the airlines … well, there isn’t any good news. But, is there ever?

[Photo by emrank | counting days | via Flickr]

Congress to investigate airline fees … but not for your benefit

by Tom Johansmeyer on

Congress is digging into all those new airline fees. Extra bags, special check-in situations … you name it. Before you start cheering on our lawmakers, though, you should know that they aren’t doing this from a sense of consumer advocacy. Frankly, Congress doesn’t give a damn how much you pay for air travel. But, it does care how you pay. Why? A cash-strapped government is wondering if it’s leaving money on the table.

When you look at your receipt, the line with “taxes” has never been lost on you, right? Well, the add-ons aren’t included in this number: Congress has a tax on airfare, not all the other stuff. So, for the airlines, this has been a tax-free revenue stream, one that’s been crucial to helping the already bruised airlines survive the current recession.

Yet, is it really just airfare in another form? That’s what Congress wants to know. Even if this is a different form of revenue, do you think it will be left untouched? Of course not! The government needs money, and there’s nothing stopping it from passing a new bill to tax the extra services. How much resistance would be raised?

Think about it.

The average person, even if traveling frequently for personal reasons, wouldn’t be hit too hard by the tax on the fees. If a $10 bag surcharge were taxed at 30% (just to pick a random and unreasonably ugly number) and a passenger flew weekly, he’d rack up $152 in taxes on the additional fees … and that’s assuming he needs to check the extra bag and did so every week. If faced with this or a higher income tax, how would you ask your congressman to vote?

Add it all up, and there’s some tax money to be had. The airline industry has pulled in more than $3 billion this year from the extra fees we all love to hate. If they were taxed at the same rate as fares — a much more reasonable 7.5% — $225 million in tax revenue would be generated. That’s not a trivial number.

The fees aren’t going to go away, and if all goes as it seems, a new tax will be here to stay, as well.

50% of air travelers will fly with the flu to avoid a fee

by Katie Hammel on

I’m a one of the those people who always seems to get sick after a long plane ride. A few days post-trip, I suddenly get a runny nose, sore throat and all the other telltale signs of a cold, most likely contracted from a sick passenger. Usually it’s minor, and I’m out of commission for only a few days.

I guess I’ve just been lucky that it hasn’t been the flu, because, according to a recent TripAdvisor survey, over 50% of travelers would choose flying with the flu over paying a fee to change their flight. As if we needed more reason to get a flu shot before we travel this season, now we know that someone with the flu may end up on our flight, just to avoid the fee.

Out of 2,327 people, 51% said they would fly while sick with the flu rather than pay the $150-$200 fee (plus any change in price) imposed by most airlines in order to change their flights to a later date. This is obviously, alarming news, but I can see why it is the case that people would rather cough up some germs on their fellow passengers than cough up the extra cash to change the tickets. Especially because costs for the new dates will often be higher, meaning you may end up paying more like $300-$400 per ticket for the change.

In the case of inescapable commitments, I can understand why someone would not change the ticket. But for a leisure trip, I would consider it. Of course, I don’t want to get others sick, but from a purely selfish standpoint, I don’t want to spend my time in the air shaking and shivering with the flu, or to spend my entire vacation laid up in bed. But then again…if I felt well enough to get on the plane despite having the flu, I would definitely do it rather than incur the extra charges and have to change all my travel plans.

On his blog, Christopher Elliot offers a solution – airlines need to lower or waive the change fees during flu season. We need to stop financially penalizing those who get sick and allow them to change their flights easily, or they will continue to fly and risk spreading the flu to other passengers.