Airlines Fees Are Taking Off

Photo: caribb

Passengers, fasten your seatbelts and take out your wallets.  The airlines are finding new ways to make money: by charging fees for anything from a checked bag to an in-flight pillow.

Airlines call these charges “ancillary revenue opportunities.” With the industry looking at global losses of $9 billion to $11 billion for 2009, carriers are desperate for new income.

To be sure, fees are nothing new for the airline industry. Charges for overweight luggage and air-to-ground phone calls have been around forever. But these days, the airlines have invented so many fees that the journey from Point A to Point B has become a revenue opportunity with a captive audience.

First, there are the sometimes unavoidable “gotcha” charges for itinerary changes or to speak to a human when booking a flight. Some airlines, such as Spirit Air, are even starting to impose a “convenience” fee for purchasing a ticket with a credit card. Others, like British Airways and AirTran, have recently implemented a fee to reserve a seat in advance.

There are also what you may call “sucker” fees: paying for Web access, buying miles to get an “elite” status, or purchasing meals that are hardly worth eating.

And, admittedly, there are some worthwhile “convenience” fees. Some carriers will let you buy your way into the fast lane at security, a one-time pass to the lounge, extra legroom ($20 on JetBlue) or early boarding ($10 on Southwest).  In February, American Airlines announced it would charge a $50 fee for ticketed passengers to fly standby on an earlier flight, following the lead of Delta, US Airways and others.

Desperate for Revenue

The recession’s impact on travel demand is only the latest reason airlines are desperate for extra revenue. Since 9/11, airlines have been hit by one crisis after another, not the least of which is the roller coaster in jet fuel prices. Non-passenger/non-cargo revenue is one way for airlines to hedge their bottom lines against plummeting ticket sales and skyrocketing costs.

According to a February report by the Centre for Asia Pacific Aviation (CAPA), the airline industry expects to generate about $58 billion in ancillary revenues in 2010: double the ancillary revenues it generated in 2001.

US carriers alone anticipate earning an extra $4 billion this year just from new baggage fees. According to the CAPA report, “we are just at the start of the movement to monetize services and products passengers used to receive as part of the ticket price.” While seat sales dropped 22% in the third quarter of 2009, the baggage fees collected by the US airline industry doubled.

When United Airlines announced last October that its quarterly losses were (only!) $63 million, analysts cheered and complemented the airline on bringing in new revenues from ancillary fees. Allegiant Travel Company, parent of Allegiant Air and Allegiant Vacations, actually reported ancillary extras were accounting for 33% of average total fares in their third quarter. JetBlue, currently earning an average of $17.50 per passenger on ancillaries, promises to “continue to look for opportunities to meet the needs of our customers.”

The Holy Grail of Revenue Treasure

 US Airlines’ passenger baggage fee revenue collection (1Q 2005 through 3Q 2009; USD ‘000)

 

Source: Centre for Asia Pacific Aviation and US Bureau of Transportation Statistics.

All five of the big US carriers (American, Continental, Delta, United, and US Airways) hiked baggage fees to celebrate the New Year, according to a January report by Jay Sorensen, president of the airline consulting firm IdeaWorks.

“Major airlines now clearly consider baggage fees the holy grail of revenue treasure,” Sorensen wrote. “It’s easier to announce a single nationwide fee increase and avoid the messy details of market-by-market fare hikes. The design of online shopping sites makes these increases invisible to consumers; the price matrix is limited to air fares.”  

As for the add-ons, in a speech at the World Low Cost Airline aviation conference in Barcelona, Nico Bezuidenhout, CEO of South African low-cost carrier Mango Airlines told his peers there are compelling reasons to take ancillary revenue opportunities very seriously: Airline customers are pre-qualified as having disposable income, demonstrated trust in the airline’s brand, and they have predictable travel and purchase behaviors.

“Not only do airlines have substantial insight into who they carry, but air travel typically represents the first purchase activity in the overall travel procurement cycle, followed by destination content, hotels and cars bookings—all of this serving to provide airlines with the ideal contextualized sales opportunity,” Bezuidenhout told the audience.

Avoiding the Fees

There are ways to avoid at least some of those fees. Elite frequent fliers and passengers flying first or business class, for example, generally are not charged baggage fees.

Knowing what your airline will ding you for can help you plan ahead. Pare down your packing to fit in a regulation roll-aboard—and be sure to leave any TSA-prohibited items at home.

Before you go the airport, know your rights. Let your representatives know that aviation consumer protection is important to you. And by all means, whenever you can, patronize the airlines that aren’t trying to nickel and dime you to death. Currently, Southwest and JetBlue aren’t charging for first bags and Continental still serves meals in coach as part of the ticket price. Military personnel are exempt from a lot of these charges, too.

David Sefton, director of west coast operations for travel agency Altour points out that checked baggage fees can be purchased at a discount from most carriers as part of the online check-in process. But he warns that those fees are typically non-refundable if you change your itinerary. Carriers will refund a checked bag fee if a flight is cancelled but not necessarily if baggage is delayed due to mishandling.

Frequent fliers might consider an annual baggage fee pass. Last year, United Airlines introduced an annual-fee option to check in up to two bags per flight without a fee. Up to seven other people booked with you can check their bags as well. The introductory price for the pass is $249, according to Sefton. “Considering that United charges $20 for the first bag and $30 for a second bag, a family of four checking six bags would break even after just one round-trip,” he says.

The same goes for seat fees, which are typically non-refundable and non-transferrable. United has an annual Economy Plus pass for $349 to get privileges you used to have to earn with miles. “This option entitles a traveler and a companion to confirm economy plus seats for an entire year, Sefton says. “Considering that the round-trip cost to purchase Economy Plus seats separately for a party of two from Los Angeles to New York is around $228 total ($57 x 4 segments) it may make sense if you travel more than once a year.” Some may even be better off signing up for United’s Mileage Plus Access Visa card , which has a hefty $275 annual fee, but gives you free Economy Plus seating, in addition to lounge passes and other bonuses.

Now Departing: Fee-Disclosure Legislation?

Maybe JetBlue can get away with cutting prices to the bone and then selling extras, but a premium carrier can only do that so much before suffering brand damage and ultimately generating momentum for stiffer passenger rights legislation.

Last year, Sen. Robert Menendez (D-N.J.), introduced the Clear Airfares Act, which would require airlines to provide a full breakdown of all fees and surcharges that a passenger may incur during their flight (such as baggage, meal and pet fees) before they ask for personal and payment information.  On the Senate floor, however, that legislation has yet to take off.

Steve Barth blogs about work, play, society and politics at Reflexions.