Top five reasons you’ll pay more for flights

by Tom Johansmeyer on

It looks like flight deals are a thing of the past. The airline sector is starting to recover, as evidenced by an aggregate $1.3 billion in earnings for the six largest U.S. carriers last quarter, and more profits are said to be on the horizon. Of course, we’re still in the early stages, and those earnings do pale in comparison to the $22.7 billion in losses sustained in 2008 and 2009. So, the airlines are making up for lost time and taking advantage of a swing in the economy … that means you’re going to pay for it.

Good news for the airlines, of course, translates to a thinner wallet for you, but it indicates that you’re at least willing to handle the higher cost, since airlines tend to be price-takers rather than price setters.

Why are you going to pay more for flights? Here are the top five reasons:

1. Extra fees no longer “extra”: they’re part of the package now. Airlines raked in $13.5 billion from fees in 2009, a 43 percent spike year over year. They aren’t going away. As the industry recovers, this will help keep fares higher.

According to the Associated Press:

United and American led the way on “ancillary revenue,” including fees, at about $1.8 billion apiece last year, according to IdeaWorks. United Airlines President John Tague calls fees “an unequivocal success,” and suggests his airline could still double the amount it’s bringing in with baggage fees.

2. The market supports higher prices: airlines charge what they can get, as it is a consumer-driven market. So far, consumers are responding favorably to price increases, with fares up an average of 18 percent this summer.

3. Airlines to hold the line this fall: demand is expected to decline through the end of summer, and the airline will try to keep from offering deep discounts. In fact, many are offering deals to get passengers interested but are able to convert into higher-priced seats.

4. Shared armrests the norm: the planes are full. Delta filled close to 90 percent of its seats last month, with Continental at 87 percent and American at 86 percent. This means there are more fares covering the cost of the flight, which delivers favorable financial results.

5. Temptation to add flights resisted: rather than bring more planes out to handle this increase in demand, the airlines seem to be fighting the urge, because bookings are sluggish and the economic recovery is tenuous.

[photo by Ma1974 via Flickr]

Congress says airline fees, basic math obscure deals

by Tom Johansmeyer on

Deal-hunting used to be relatively simple. You’d fire up your computer, hit a few aggregators and online travel agencies, maybe a few airline sites. Then, you’d pick your ticket and pull the trigger. The lowest number wins, right?

Wrong … at least according to Congess.

Down in Washington, the folks who’d rather not be distracted by continued high unemployment or wars in two countries dispatched investigators to dig into the wave of new fees introduced over the past few years make it hard to figure out where the best deal is. Your cheap ride seems great, of course, until you want to grab a pillow and check a bag … or not check a bag, depending on the airline.

According to USA Today:

Since 2007, many airlines have been charging for services that were traditionally included in the price of a ticket. That’s improved airline bottom lines in a tough economy but raised the ire of travelers who find themselves nickeled and dimed to substantially higher costs.

The mathematical gymnastics involved – e.g., adding a bag-checking fee to the ticket price – are more common in Europe, where easyJet and Ryanair have forced passengers to do addition for years.

While Congressional investigators don’t think passengers can do the math for themselves, it’s clear that the airlines have figured it out: 10 U.S. airlines raked in $7.8 billion in ancillary fees last year. Delta led the pack with $1.6 billion.

Spirit Airlines to Congress: paying for overhead bins helps the poor

by Tom Johansmeyer on


You just don’t need to take your bags on vacation, said Spirit Airlines CEO, Ben Baldanza. He’s told Congress that his airline, which brands itself as a “super-low-cost” carrier, actually makes it easier for the proletariat poor to take to the skies, even if it does require that they plop down $45 to stuff a carry-on into the overhead bin.

In a sense, it does. If you choose not to check a bag, that’s $5 bucks shy of half a C-note you’re tucking back in your wallet, but the cheap tickets can run a tad costly if you go with all the up-charges, according to a report by ABC News. So, the poor are all set as long as they exercise some restraint, it seems.

According to Baldanza, “We are certain that Spirit’s decision to unbundle services not essential to the transportation of passengers, has enabled more passengers to fly at lower cost.” He added, “Indeed given our low fares, it has allowed many to travel who otherwise simply could not afford to do so.”

So, what’s next for Spirit? I’m guessing that cake will be served on every flight, for a fee of course, which the airline will gladly let the poor eat.

Airline fees: Please don’t lie, don’t be moronic

by Tom Johansmeyer on

As much as you may hate ancillary fees on airlines, they’re clearly making a difference. The nickel-and-diming of the average passenger was good for a whopping $7.8 billion last year … up 42 percent from 2008. Airlines are making serious cash on inconvenient fees, which means they aren’t going away. The coming travel market recovery (look for it in 2011) will put more asses in seats and, of course, more bucks in the airline industry till. What was $7.8 billion last year only has the potential to become much, much larger.

And that could be the problem.

It might not be easy to sympathize with the airlines, companies with well-entrenched reputations for being among the most poorly run enterprises since the dawn of capitalism. But, at least when they were on the ropes (for real this time … right?), we could stomach that the ancillary fees were a survival mechanism. When revenue per available seat-mile starts to come back, passengers will become increasingly offended by the price tags popped on blankets and baggage and everything in between.Fortunately, there is a silver lining in all this: anything we feel is totally irrelevant. Airlines will charge what they can charge. Since ancillary fees are a market-wide trend, we’ll have to get used to them. Some airlines aren’t heading down this road with zeal, but they may not go to your desired destination, making the offer of goodwill moot.

And, if the extra charges were slashed, ticket prices would just increase for no apparent underlying reason, and we’d all have to share in the cost of the blanket that the gump in seat 11D feels he needs to stay warm.

The real issue, it seems, isn’t prices – they are what they are. Instead, passengers would be happier less pissed if the airlines were a bit more transparent. Notes Tim Winship of SmartTraveler.com:

The word “sneaky” appears prominently and often in consumers’ grumbling about fee-for-all pricing. And more substantively, adding injury to insult, consumers can’t make meaningful price comparisons if they don’t have ready access to all-inclusive prices from all airlines, whether it’s on the carriers’ own websites or on the site of an online travel agent.

Full fee disclosure is something the airlines should have done proactively, from the beginning. Soon, they may have no choice-as mentioned above, the DOT has included language in its proposed passenger-protection legislation that would mandate up-front disclosure of all fees associated with a particular ticket price.

The winning (or at least non-losing) formula for airline pricing seems to be simple: don’t be stupid, don’t lie and don’t charge people for the lav.

Hotels explore a la carte pricing

by Tom Johansmeyer on

We’ve spent plenty of electrons over the past two years griping about the almost comstantly arising airline fees. Paying to check bags, get blankets and so on has become part of the misery that comes with getting on a plane these days. Meanwhile, the hospitality industry managed to stay above the fray. The same pressures affecting the airlines came to bear on hotels, as well. And, the constraints on credit made it even worse, with buildings in progress struggling under the weight of insufficient or expensive capital.

Now, there are grumblings that hotels could follow the airlines. Look out for some extra fees.

That hotels would adopt an a la carte model isn’t surprising. Rather, it’s almost shocking that it’s taken this long. A recovery in the hospitality sector isn’t expected to begin until 2011, and like airlines, hotels sell a perishable commodity. For an airline, an empty seat on a particular flight can never be sold later. If 34C from New York to Las Vegas at 7 PM on July 2, 2010 is empty, it represents money that will never come in the door. Likewise, if hotel room 345 in Las Vegas is empty that night, it can never be recovered.

The money needs to come from somewhere else.Of course, hotels are no strangers to additional fees. Many charge for internet access and use of the gym, among other amenities. And, like the airlines, they cut staff and perks throughout the financial crisis and its aftermath, a situation that has not gone unnoticed. What’s on the horizon, however, could be extreme.

Could you imagine paying for use of the television? Housekeeping? Towels?

A hotel in Europe, easyHotel, is playing with this model. For low room rates, it will be hard to beat: it can get as low as $35 a night. But, the towel fees essentially mean that you’ll need to pay to shower. It will be interesting to see how this unfolds, but I’m not sure the model will be broadly applicable.

There’s more competition among hotels than there is among airlines – mainly because we have more choices available. Depending on your hometown and destination, the flights you can take are limited, even if you’re headed to a major city. Once you hit the ground, however, there are usually a number of hotels from which to choose. Often, you can pick from properties in a similar category (e.g., extended stay). With hotels eager to get guests in the door, it’s unlikely that fee-laden stays will get much traction.

Generally, I’m supportive of anything that can help a business turn a profit (that’s why they exist, after all), but I get the feeling that a la carte hotels will be niche at best. What do you think about this?