Categorized | Airlines

What airline fees are coming next?

Posted on 25 July 2012

It used to be death and taxes were the only certainties in life, but in recent years more and higher airline fees have become a lock as well.


By now you probably know that the airlines call it ancillary revenue, but by any name it’s become a critical source of funding for an industry that perpetually bleeds red ink. These days no analysts speak of rolling back or rescinding fees. Instead the only question is, what’s next?


Nickels + dimes = big business


You may view all those fees for everything from checking a bag to speaking to a reservations agent as nickel-and-diming, but nickels and dimes can really add up. This week, the IdeaWorksCompany released the Amadeus Review of Ancillary Revenue Results for 2011, which indicates such revenue rose to $22.6 billion in 2011 among 50 international airlines that disclose their fees. That’s an incredible leap of 66% from the $13.5 billion posted in 2009.

The list of top ten airlines for generating ancillary revenue in 2011 includes six U.S. carriers:

•United Continental ($5.2 billion)

•Delta ($2.5 billion)

•American ($2.1 billion)

•Qantas ($1.4 billion)

•Southwest ($1.2 billion)

•easyJet ($1.1 billion)

•Ryanair ($1.1 billion)

•US Airways ($1.1 billion)

•TAM ($667 million)

•Alaska ($610 million)


In the case of United Continental, that came to $36.47 per passenger last year.


Not only do new fees keep popping up, but existing fees continue rising as well. For example, just posted a new chart that shows fees for same day flight changes have gone up at American, JetBlue and United.


Of course, the source of much passenger anger is checked baggage fees, and it’s no surprise that Southwest (first two bags free) and JetBlue (first bag free) have fared better in recent customer surveys. Yet Southwest still ranked fifth in the review, because Amadeus asserts the airline “embraced the sale of convenience-adding services,” such as Earlybird check-in, onboard Wi-Fi and carry-on pet fees (here’s a complete list of Southwest’s fees).


Predicting the future


So the question is, how can we tell what the major domestic carriers are likely to charge for next? Well, here are two good steps to find out:

1) Visit Ryanair’s site

2) Visit Spirit Airlines’ site


The Irish low-cost carrier Ryanair can truly be considered the world leader in deconstructing airfares. CEO Michael O’Leary is a 21st Century P.T. Barnum, and as noted on this site in 2010, international media outlets respond every time he threatens to introduce pay toilets or “standing-room-only” vertical seating. Yet no one’s laughing about Ryanair’s formerly nutty ideas to charge for checked baggage or in-flight snacks, or its current lengthy list of fees.


As for Spirit, when it decided to charge for checked baggage back in 2007, I polled all other U.S. airlines and no other domestic carrier indicated it would match the policy. By 2008, of course, the majors were all emulating Spirit.


According to Amadeus, when you analyze ancillary revenue as a total percentage of annual results, Spirit is far and away the industry leader in charging fees—not just in the U.S. but worldwide. Last year a whopping 33.2% of Spirit’s total revenue was generated by fees. Another way of looking at it is that customers spent $2 on fares for every $3 paid to Spirit.


The Miramar-Fla. based carrier provides a detailed page on its site entitled Our Optional Fees which includes up to $45 for carry-on bags (soon to be as high as $100 at the gate); $10 per customer per booking for reservations; and $100 for booking an unaccompanied minor. Back in 2009, profiled Spirit CEO Ben Baldanza and he boasted of the carrier’s fee structure, claiming Spirit was the first airline “to stop pouring water for free.”


If I had to bet on the future, I would guess Spirit’s fees for carry-on baggage will soon become ubiquitous throughout the domestic industry. As will Ryanair’s “admin fee” and “reserved seating fee.” And unfortunately, I think we’ll see more fees for flight changes, as well as frequent flier transactions and redemption.


How much will you pay?


Now let’s be clear. Spirit has a well-deserved reputation for being deficient in customer service, and this month’s passenger stranding in Houston certainly didn’t help. But there’s no denying Spirit’s fares can be drastically less than the legacy airlines’ fares, and therefore the concept of “a la carte pricing” is more transparent at Spirit. When an executive at a major carrier claims you’re “saving” $35 when you elect not to check a bag on a $2,000 fare, that assertion sounds pretty hollow.


The real problem for consumers is apparent whether you’re flying a low-cost carrier or a full-service airline: No matter what channel you choose to book your flight, you should have immediate access to ALL fees, so you can calculate the total bottom-line cost of your fare. This issue also affects corporate travel planners, who have a harder time estimating total travel costs, and business travelers, who according to a new report may not be reimbursed for all travel fees accrued on a trip.


Whether you book your flight online, over the phone, through a travel agency, or at a ticket counter, you have a right to know what the final tally will be. Particularly since the only certainty seems to be that more airline fees are headed our way. So for now you need to remain vigilant and ask—before you book.

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