Airline Fees on the Rise: What You Need to Know
by Jordan SimonPosted May 10th 2010 01:07 PMUpdated May 10th 2010 02:16 PM
We covered the new world of baggage fees and surcharges back in December, but the add-ons haven't stopped and airlines are getting more and more creative, charging for as many "perks" as they can: "preferred" seat selection, non-website ticket purchase, itinerary changes, confirmed same-day standby, booking fees for frequent flier redemptions, and more. And now, budget carrier Spirit Airlines announced they would begin charging up to $45 for any bags placed in overhead bins, making them the first of the major U.S. airlines to charge for carry-ons. Unfortunately airlines' à la carte "convenience fees" may just be the tip of the iceberg for a drowning industry trying to stay afloat amid increasing shortfalls, including an 18-percent drop in 2009 passenger revenue alone.
"The airline industry hasn't made money since the Wright Brothers," jokes George Hobica, creator and president of airfarewatchdog.com. Hobica thinks "passengers already accept that if they carry on their own bags because they packed light they shouldn't pay the fuel and labor costs for the guy bringing home a new TV as a Christmas gift." What they do hate is paying for things that really don't cost the airlines what the airlines are charging. "Passengers have a tough time justifying the extra cost for a seat assignment," says Uri Argov, President and CEO of LastMinuteTravel.com. "It demonstrates greed as it really does not cost the airline any additional expenditures, whereas a meal or another tangible service does." On the other hand, Hobica admits, "More passengers are getting used to paying for what they, not other people, use -- just as you wouldn't pay for a drink at the table next to you in a restaurant." He likens it to people having no problem paying for a better seat at a Broadway musical, so why should they complain about paying for an exit row seat on a plane with extra legroom?
A recent survey from Consumer Reports found that fees were the top two biggest complaints Americans had about air travel. The magazine asked 2,000 travelers to rate their gripes about flying on a 10-point scale, with 10 being the most annoying. Luggage charges topped the list at 8.4, while the catch-all phrase "added fees" weighed in second with a ranking of 8.1.
What it comes down to is that the fare passengers originally see can turn out to be not such a great deal after all. "Baggage fees also add up quickly and can be very detrimental to a family traveling on vacation," says Uri Argov, president and CEO of LastMinuteTravel.com, "which ultimately triggers the comparison of driving versus flying." Airlines seem to be following the cruise ship model of luring passengers with low fares then tempting them with extras like spa treatments, shopping, and the casino. "Airlines will likely roll out options in the future like selling DVDs in-flight, having concierge service in first class, and pre-selling in-flight food and beverage vouchers," says Harvey Alpert, founder of Brand in the Hand, a company that sells third-party advertising to several airlines on in-flight snack bags (the latest: Hilton Garden Inn's new "Cooked-to-Order" meals on Delta).
The bottom line is, no one is happy about all those fees. A recent TripAdvisor poll found that 36 percent of flyers brought only carry-on bags, 39 percent now fly only airlines that don't charge baggage fees, and 91 percent said they would not pay $8 for a pillow on a flight. Department of Transportation statistics showed U.S. air travel numbers plunged to new lows in 2009. The truth is, the airlines feel your pain. The industry is in freefall dealing with its own set of new fees and surcharges, including sky-high labor and fuel costs, CO2 emission taxes, airport passenger facility and improvement fees, security taxes, and other expenses.
On the plus side, the FAA Reauthorization Act of 2009 currently before Congress provides more than $70 billion for the FAA's programs, including $16.2 billion for the Airport Improvement Program, nearly $13.4 billion for facilities and equipment, $1.35 billion for research, engineering and development, and $38.9 billion for FAA operations through 2012. But that money has to come from somewhere. There are also TSA-imposed security taxes that will probably more than double by 2014 and FAA segment taxes, part of which aim to lower the $2 trillion national deficit.
The bleak picture for consumers is a 10- to 12-percent fare increase in 2011 just to offset these government-imposed surcharges. But for airlines to become at all profitable, a 17 percent figure is likelier, according to Vaughn Cordle, chief analyst for AirlineForecasts.com. He estimates that the industry loses almost $9 per enplaned passenger when it needs to earn $18. That $27 shortfall on average over the past decade, especially given that airlines are struggling under massive debt post-restructuring and must compete in fare wars (which may result in survival-mode consolidation, perhaps bankruptcies), helped trigger the "desperate necessity to nickel-and-dime passengers with as many extra surcharges as possible, as well as seek out more creative means of increasing income," according to Cordle. He also notes that 70 percent of labor contracts are up for renegotiation this summer and unions want to reverse the post-9/11 rollbacks, which could lead to a $3 billion to $6 billion increase in labor costs. Yet significant cost hikes (or a lengthy strike) may bankrupt airlines like American with more senior staffers, unwieldy under-funded pension plans, and huge benefit/healthcare minimum annual payments. Cordle's outlook on fuel costs isn't any sunnier. He estimates fuel costs "will average $80 a barrel this year and $84 in 2011 with a potential spike to $100 or more." That would increase industry expenses by $6.4 billion. Proposed cap-and-trade carbon taxes could cost airlines another $4 billion.
So what's the other option besides raising fares and tacking on fees (see our chart below to find out what you can expect to pay on some major carriers if you want to check a bag or grab a pillow)? Check out our sidebar, where we asked real travelers to weigh in with their suggestions.
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