Are airline fees about to go higher?

by Tom Johansmeyer on

What could possibly be next? Absent Ryanair-style fee insanity, there seems to be little the airlines can do to our wallets now. Blankets, bags and beverages are just the tip of the iceberg: it seems anything that can come at a price does. The only thing missing is a seemingly well-intentioned Congress that wants its share of the airlines’ recently found largess.

Make no mistake about it: extra fees translate to real money for airlines. Last year, they amounted to $7.9 billion in the United States, and in the second quarter of 2010, the top six airlines in the country picked up $2.1 billion. Following the effects of the 2008 financial crisis, this is cash these companies desperately needed to collect.

This is where Congress enters the picture. Right now, the government scores a 7.5 percent on fares. By effectively unbundling certain “amenities” – like checked baggage – from the fares, the airlines can charge lower prices, with the ancillary stuff charged on a pay-to-play basis. In the end, the feds are stuck with a smaller revenue base to tax. And, the airlines are able to bypass the excise tax, and boost their profits a bit.To plug the hole, Senator Jim Webb of Virginia has proposed legislation that would subject the additional fees to the same 7.5 percent tax as the fares, restoring at least some of the lost tax revenue. From the perspective of Congress, this makes sense. The feds took it on the chin financially when the airlines unbundled, and they need to make up for it (because cutting spending just doesn’t seem to be an option).

For the airlines, this poses a problem. Either they can swallow the pill and take the 7.5 percent it against their revenues, or they can pass the additional cost along to their customers. Since 2011 is likely to be a tougher year for the sector than 2010, it looks to me like the writing is on the wall. Why absorb it when you can pass it along, right?

The tax is being proposed, so give it some time. But, if it hits, I’d expect we’ll feel it, too.

JetBlue in-flight internet access coming in 2012, worth the wait?

by Tom Johansmeyer on

JetBlue is going to offer in-flight internet access! This is exciting news, right? JetBlue is one of the more exciting airlines in the market right now, having figured out how to offer solid customer service without jacking up fares (a combination the major carriers believe is impossible to attain … despite the fact that JetBlue has done so). So, the airline is getting into the internet game, a space in which it has lagged many other carriers.

Unfortunately, JetBlue isn’t going to begin installing the equipment until the middle of 2012, as it needs to be checked out and approved by the FAA before the airline can put it into production, according to FlightGlobal. The slow start might actually work to JetBlue’s advantage.

Rather than implement the solutions already out on the market, JetBlue has selected a different type of internet access technology, which should translate to better internet service for its passengers – which pairs well with the high levels of customer service the airline already offers. Unlike existing internet access systems, which interact with the ground, the JetBlue system will hit satellites. JetBlue CEO Dave Barger explains to FlightGlobal:

“In just the three years since we launched BetaBlue, the first commercial aircraft with simple messaging capability, technology has advanced by generations. Rather than invest in current technology, designed to transmit broadcast video and audio, we elected to partner with ViaSat to create broadband functionality worthy of today’s interactive personal technology needs.”

Barger also says, “This system will be designed for the 21st century, not just for today’s personal connectivity needs, but with the bandwidth to expand to meet tomorrow’s needs as well.”

[Via Business Insider]

Airlines continued to cut jobs – 25 months in a row

by Tom Johansmeyer on

There’s a reason why airlines have positioned themselves for a solid performance in 2010: in addition to charging all those extra fees, they have been cutting positions (and thus expenses). In July alone, the industry in the United States trimmed 2.3 percent of its workforce relative to July 2009. That made 25 consecutive months of net job losses in the domestic airline sector.

According to the Department of Transportation‘s Bureau of Transportation Statistics, 378,100 people were employed full-time by the airline industry in the United States in July 2010, a decline of 8,700 from July 2009. Five of the six network carriers cut positions, with Delta adding headcount only because of its Northwest acquisition. Only two low-cost carries reported net cuts for this period (Southwest and AirTran).

According to the Associated Press, maintenance and ticket agent positions are getting hit most:

While the number of in-flight airline employees like pilots and flight attendants is regulated by the Federal Aviation Administration, the bulk of airline employees-maintenance crews, reservations and ticket agents-work on the ground and aren’t subject to federal minimums. Airlines are operating with less staff to save money, but they’re also outsourcing maintenance and other work to other countries where labor is cheaper.

[photo by aflcio via Flickr]

Airline extra fees: $2 billion in three months

by Tom Johansmeyer on

Airline fees are definitely not going away anytime soon – not after the second quarter it gave the airline industry. Carriers in the United States raked in $2.1 billion in fees and extra charges in the second quarter of this year, a 13 percent year-over-year surge. And, it was good enough to deliver the sector’s first profitable quarter since 2007.

Well, here’s the worst part for you: most of it came from checked baggage fees. This annoyance was good for $893 million in the second quarter of 2010, a gain of 16 percent from the second quarter of 2009. Reservation fees were good for $594 million, with ancillary revenue (e.g., frequent flier mileage sales and pet fees) reaching $618 million.

Delta benefited most from the fees that passengers hate most, at $682 million. American Airlines and US Airways were next.

[photo by cliff1066 via Flickr]

Four reasons airlines blame passengers for their current woes

by Tom Johansmeyer on

It would be so much easier if we’d just pay more, right? That’s what the airlines seem to believe. It’s impossible for them to turn consistent profits because we just won’t accept higher prices. And, kicking the poor off the plane doesn’t seem to be an option.

I got up this morning and read George Hobica’s hilarious “interview” with Wilbur Flywright, CEO of BrokenWings Airways. In it, I was treated to one airline industry cliché after another. To see them all in one place, it was either eye-opening or strangely reminiscent of an ambitious gate agent’s Twitter account.

Here are the four reasons, according to “Flywright,” airlines blame us – the people who pay their bills – for their inability to run well, despite the fact that some (e.g., Southwest and JetBlue) have actually found a way to thrive.1. We won’t pay more: Of course, I don’t know any industry in which customers pay more than is necessary … at least, not purposefully. You may get suckered at the used car lot, but you don’t go to your local grocery store, demand to see the manager and explain to him, as though he ate too much paste in his youth, that eggs really should cost 34 percent more.

2. We have alternatives: When air travel is inconvenient or expensive, we can take any number of cheap bus services or even drive. Frankly, it takes a strange turn of events to get me on a plane to Boston or Washington, DC.

3. “We” deregulated the industry: It’s the law of the land, and in theory, passengers are voters (we’re indirectly responsible). So, we “imposed” a free market on the airline industry … the nerve of voters in a free society! It may have happened more than 30 years ago, but we still hear airline people gripe about it, even if they were of single-digit age when the transformation occurred.

Hint to airlines: Don’t blame passengers for deregulation – I was only a year old at the time. I assure you, I had nothing to do with it, likewise most of my friends. If we could have done something about it we would have. Also, don’t talk about it as something that killed (or at least maimed) your industry. It was 30 years ago, you need a new lamentation. How about poor customer service levels?

4. We made the airlines cut stuff: Since we won’t pay a “fair” fare, the airlines have had to make cuts. Routes, employee compensation, amenities (if you can call them that) … we now have to pay for what we want in the form of fees.

Taking fees and deregulation together, I just loved this:

So what did we do? We eliminated service. We cut salaries and benefits. No more little plastic wings for the kiddies; if you remember those, then you remember that the cheapest roundtrip coach fare from New York to Los Angeles in 1959 was $231, or about $1,800 in today’s dollars. And if you remember that, then could you please shut up about the fees?

And occasionally, there’s a good point:

Ah, the fees. Can we agree on just one thing? If your neighbor moves, you aren’t going to pay for it, right? No, of course not. Not unless you really wanted him gone. So why should you pay for the jet fuel consumed by some moron who’s flying a 100-pound steamer trunk across the country in our baggage compartment?

[photo by leafar. via Flickr]