TRAVEL

08.13.12

Those Awful Airline Fees From United, American, Delta, and the Rest Add Up

Airlines are adding on fees at an unprecedented pace, finding new and pricier ways to screw passengers—and we're not talking about the mile-high club.

The airlines like to assert that airfares are lower than they were in years past. But there are quite a few exceptions and caveats. And before you budget your next trip, the first question you need to ask is, did you calculate the total cost of your ticket with all those add-on fees?

Did you include the $25 “ticketing with an agent” fee from United if you speak by phone? The $75 “MoveUp” fee on US Airways to rebook on an earlier flight? The $9 “Priority Boarding” fee on Delta so you can “stow your bags without hassle”? Or the “Preferred Seats” charge of $4 to $59 on American for “standard legroom seats conveniently located near the front of the main cabin”?

And of course you need to remember those fees for checking your first bag, which can range up to $38 per person. More than two bags means additional fees, as do heavier and bulkier luggage. But it could be worse: On Spirit you’ll pay up to $45 for your carry-on bag.

The airlines certainly aren’t alone in finding ways to nickel-and-dime customers. Banks do it (remember free checking?), gas stations do it (remember free air for your tires?), and even car-rental companies do it (remember free roadside service?). But airlines have quickly and dramatically rewritten rules that have been in place for decades, and an increasing number of passengers don’t like being charged for services that traditionally were free.

That little three-letter word—FEE—has become the dirtiest term in aviation, and for an industry that suffers from low customer satisfaction, fees repeatedly top the list of passenger complaints. Now most senior airline executives can calmly explain the economics and why charging fees is a necessity in their view. They don’t get what all the fuss is about.

As I point out in my new book, Attention All Passengers, airline execs are a particularly tone-deaf species of management, undoubtedly because they never truly sample their own products the way we do. They are never bumped against their will, their baggage is never mishandled, and they never suffer through what I term the “Information Vacuum” of wondering if their flight will operate on time—or at all. And they certainly are never charged fees.

Yet the industry maintains “unbundling” fees provides us with one of Corporate America’s favorite terms: choice. We can choose to call reservations to make a change to our flight—or not. We can choose to check a bag for a 30-day journey—or not. We can choose to swap out our middle seat on an eight-hour flight—or not. But we need to remember that our choices now come with price tags.

All those fees comprise what the airlines term “ancillary revenue,” the latest means of keeping a perennially insolvent industry afloat.

All those fees comprise what the airlines term “ancillary revenue,” the latest means of keeping a perennially insolvent industry afloat. Last week a comprehensive study from IdeaWorksCompany found 50 major international airlines posted $22.6 billion in ancillary revenue last year. So comparing current airfares to prices from 5 or 10 years ago quickly becomes a study in apples and oranges.

What’s more, determining how much you’ll pay for a flight has ironically gotten harder than ever in the digital age. That’s one reason a collection of travel companies dubbed the Open Allies for Airfare Transparency is lobbying for “complete fare and ancillary fee information” for all consumers—regardless of how or where you book your flight.

But not all airlines charge equally. If you look at it on a per-passenger basis, as IdeaWorksCompany did, last year Spirit ranked highest among U.S. airlines at $41.75 per passenger, while United far outpaced other major carriers at $36.47 per head. The difference is that low-fare Spirit has made à la carte pricing its trademark, while major carriers like United have muddied their pricing beyond the average consumer’s comprehension. But make no mistake: thanks in part to the trailblazing of Spirit, airline fees are here to stay.

Conversely, JetBlue doesn’t charge for your first checked bag, and Southwest doesn’t charge for your first and second checked bags, so it’s no coincidence that the most recent J.D. Power and Associates satisfaction study of U.S. airlines found those two carriers ranked one and two, respectively. Meantime, the disconnect between airline executives who levy more fees and passengers who are becoming more dissatisfied continues to grow.

My real concern is that the airline industry’s mad race to the bottom on cost-cutting manifests itself in ways that are much more opaque than baggage fees—such as outsourcing aircraft maintenance to developing nations. Unfortunately the airlines haven’t maxed out on cutting costs. But that’s another story.

Letter to the Editor

Airlines Support Choice, Transparency for Consumers

A recent column by William J. McGee presented a skewed version of the facts surrounding the costs of air travel. The ancillary-service structure he analyzed is not new and has long been used by other industries. Since its adoption by the airlines, it has changed not just the way they do business but the way passengers plan their journeys as well. The change in pricing structure is a win for consumers. Real domestic round-trip journey prices, including ancillary services, actually decreased 26 percent (from $497 to $365) from 1990-2011. Two decades ago, travelers faced fewer choices and higher costs. Now, they are able to pay for the services and amenities they value, keeping base fares lower for all.

What’s more, the latest Department of Transportation consumer metrics demonstrate improved performance across the industry. In May 2012, 83.4 percent of flights arrived within 15 minutes of their scheduled arrival time, the eighth consecutive month of year-over-year improvement. Also in May, 99.72 percent of all U.S. airline passengers had their bags properly delivered, an all-time record for any May since 1987. This represents the 12th consecutive month of year-over-year improvement.

The column also referenced a recent IdeaWorksCompany study that said airlines made $22.6 billion in ancillary revenues last year. First, that is a worldwide number, not just U.S. airlines. But more importantly, that’s only half the story, because half of those funds received by 50 airlines around the world did not come from passengers at all. They came from frequent flier program business partners like banks, hotels and grocery chains who use frequent-flier miles as incentives. Second, for domestic travel that occurred in 2011, ancillary services accounted for an average of just 5 percent of the total cost, including the taxes imposed by the federal government.

The change in model last year enabled airlines to achieve razor-thin profits. For all of 2011, U.S. airlines earned less than $600 million or 81 cents per enplaned passenger. When the airlines are able to be sustainably profitable, everybody wins. A profitable airline industry can support more jobs, enable airlines to reinvest in their product with new planes and provide greater choices. An unprofitable industry will be forced to cuts routes and flights, leading to fewer consumer choices, frustration and fewer jobs.

The column does accurately describe the differences in services provided by individual airlines. In an industry as competitive as the airlines, choices between carriers and among services within carriers are real, abundant and here to stay. Airlines strongly support transparency and already ensure that all pricing information is fully disclosed to passengers prior to purchase through a variety of channels, including their websites, phone reservation systems and airport reservation kiosks. In short, airlines finally are operating and competing like other businesses. Similarly, the marketplace, not government, should determine how and under what commercial terms airlines permit third parties to sell their products. It is inappropriate for government to pick winners and losers in the market for distribution services, and it is inappropriate for government to interfere in the commercial relationship between airlines and distribution vendors. Those who claim this is a consumer issue are wrong on the facts and policy.

Change is constant in a competitive market and that benefits consumers. As an industry, airlines continue to evolve and consistently seek to improve their services for passengers. Despite a challenging economic climate, air travel remains the safest, most efficient form of transportation and a bargain for passengers, who have choices and are able to pay for the services they value most.

Jean Medina, Senior Vice President for Communications, Airlines for America

William J. McGee responds:

"Those who claim this is a consumer issue are wrong on the facts and the policy" is a rather extraordinary statement from the domestic airline industry's primary trade and lobbying organization, and speaks to the particular tone-deafness of the airlines. Pricing and fees are fundamental concerns of all passengers. Further, every passenger has the right to view and compare ALL airfares and fees while shopping for flights, whether they book online or offline, or through the airline or a third-party seller. Dozens of travel organizations and passenger rights advocates have made it clear that the airlines are not providing full transparency on fees.