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.

Airlines rejoice at return of business travelers

by Tom Johansmeyer on

Business travelers are giving the airline industry a reason to be hopeful … which is strange. Usually, those guys are such a drag. Trust me; I was one of them for a while. Business travelers aren’t much fun at parties or anywhere else. Nonetheless, their presence on planes means more cash in the till for the airline industry, following two years of economic mayhem (and years of management that is what it is).

At a recent meeting of the International Air Transport Association, 700 industry leaders seem to have decided that the biz is headed in the right direction, though they remain cautious. Translation:

Cautious optimism means most airlines expect to make money this year after a couple of years of staggering losses, precipitated by the oil price run-up in 2008 and the global recession in 2009. A profitable airline industry could also be good news for business travelers as airlines restore the capacity they removed from the network during the last two disastrous years, putting many more seats on sale and offering a wider array of flight options on many routes.

According to IATA, the industry lost $80 billion in the last two years, four times the amount it dropped following the terror attacks of 9/11. Yet, the corner appears to have been turned. Originally, IATA predicted a $5.6 billion loss for the airline industry in 2010, but it has since changed the forecast to a $2.5 billion aggregate profit. This really only amounts to a margin of 0.5 percent (on revenues of $545 billion), which is basically irrelevant in light of the last two years’ losses, but at least it provides a glimmer of hope.
The suits are the reason for this mild form of airline economic bliss:

The rapid turnaround has been led by business travel. During the combined oil/economic crisis, business travel took the greatest hit with passengers traveling in international first and business class down by as much as 25% in May 2009 from the previous year. In contrast, the number of passengers traveling in international economy class was only 10% lower at its bottom point in March 2009 vs. the previous year.

Now that business travelers are back on planes, many problems are creeping toward resolution. Asia and Middle East are leading the recovery, but Europe is expected to lag, with an aggregate loss of $2.8 billion despite a forecasted passenger traffic increase of 2.9 percent.

You may not be crazy about all those cell phone-toting pricks lingering at the gate … but the airlines sure are.

Airline fines and delays: The world didn’t end

by Tom Johansmeyer on

How many planes were stuck on the tarmac for more than three hours in May? You can count ’em on one hand: five. This is the second lowest result since the feds began monitoring this metric back in October 2008. A year earlier, 34 planes sat on the ground loaded with passengers for more than three hours, according to data from the Department of Transportation’s Bureau of Transportation Statistics.

May 2010 was the first full month in which the airlines faced stiff fines for keeping passengers out on the tarmac too long. Staying out there for more than three hours exposes carriers to fines of up to $27,500 per passenger.

Four of the five delays in May went to United Airlines on the same day and to the same destination: May 26, 2010 to Denver. They were diverted to Colorado Springs for weather-related reasons. The other delay belonged to Delta. There have been no fines yet, because the matters are still being investigated.The Air Transportation Association, which represents many of the top airlines in the country, says the positive results for May are the result of airline efforts to improve and good weather – not the threat of fines. The association says that declines in waits of more than three hours have been “in decline for over a year,” according to a USA Today report.

While the association claims these factors had a greater impact than the threat of fines, the steep year-over-year drop, the fact that there were only four in April and the plunge to current levels from 25 in March all suggest that the hefty costs associated with stranding passengers have all played a role.

Airline concerns that the new rule would lead to high rates of cancellation seem unfounded, as only 1.2 percent of flights were canceled in May 2010, a slight up-tick from 0.9 percent in May 2009.

Says Kate Hanni, director of FlyersRights.org, which advocated for the stricter rule: “I hate to say I told you so, but I told you so.”

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.

Airlines do one thing ahead of schedule: profits

by Tom Johansmeyer on

It seems as though flight times aren’t the only things being padded. The original estimate by the International Air Transport Association that the global airline industry wouldn’t be profitable for three years following the financial crisis gave a little bit of elbow room – something you won’t find on the planes themselves – as indicated by the recent announcement of a predicted aggregate profit of at least $2.5 billion. Back in April, IATA forecasted a $2.8 billion loss for the year.

Demand for seats is on the rise, as people just don’t want to stay home any more. Notes, Giovanni Bisignani, director general of IATA, according to a report in USA Today, “The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated.”

In 2009, the global airline industry suffered an $81 billion loss of revenue – a drop of 14.3 percent from 2008. While that did make seats a bit cheaper, it also led to the slashing of routes and what few amenities were left … not to mention all those additional fees. This year, IATA expects revenues to be up $62 billion relative to 2009, but that still leaves a lot of ground for the airlines to make up. While $2.5 billion sounds like a lot of cash, it only amounts to 0.5 percent of total industry revenue, according to Bisignani.

The industry remains “fragile,” he adds, with a slow economic recovery, vulnerability to Icelandic ashes and other disruptions, Europe’s debt crisis and oil prices threatening what gains have been made.