Operations

Airlines Keep Adding Onto Passenger Fees

LCT Staff
Posted on September 24, 2008

NEW YORK CITY – When oil was at $140 a barrel, Delta Air Lines Inc. slapped a "fuel surcharge" on frequent-flier reward tickets. American, United, and US Airways began charging to check a single bag when oil was more than $130 a barrel, each blaming fuel costs. And now that the price of oil – the biggest expense in operating an airline flight – has fallen below $100 a barrel, will airline passengers see any fee relief?

When airlines instituted baggage fees, they billed it to high oil prices. But now that fuel costs have fallen, Wall Street Journal's Scott McCartney asks if those oil-related fees will disappear. Not likely, he says.

Not likely. In fact on Monday, UAL Corp.'s United Airlines boldly doubled its fee to check a second bag to $50 one-way. While some airlines have reduced the fuel surcharges they place on cargo shipments, passengers have yet to see any relief. Airlines say fuel prices remain volatile and still remain significantly higher than just a year ago.

But a bigger change is at work in the airline industry. Airlines have long hoped they could find ways to extract more revenue out of customers than just fares, and this year's fuel crisis prompted them to ratchet up the push toward charging for different services a la carte.

So far, baggage fees and other charges are significantly improving the usually dismal finances of the industry. Passengers are paying them, if begrudgingly, and aren't shifting in large numbers to the few airlines that don't charge fees like Southwest Airlines Co.

Continental Airlines Inc. joined the fee fray last week with a $15 charge to check a first piece of luggage, and United was emboldened this week to raise its fees, even as oil prices fall. Continental said it will generate $100 million annually from that fee alone. United said all of its add-on fees could total $700 million next year.

"The concept of charging for what people use or don't use is something that will probably continue," said a spokesman for AMR Corp.'s American Airlines when asked about fees and surcharges. Says a spokesman for US Airways Group Inc.: "We have no plans to change any of these."

Just as free hot meals in coach will likely never fly again on most U.S. airlines, free baggage may indeed be a relic of a bygone era. J.P. Morgan estimates that the new fee structure and other charges airlines have imposed, from selling pillows and bottled water to charging for "free" frequent-flier awards, will add $3 billion a year to U.S. industry revenue. That's a lot for an industry that has never earned more than $5.3 billion in a year.

"It was only the reality of $140 oil that gave the U.S. industry the courage to pursue a strategy they wanted to pursue," said J.P. Morgan airline analyst Jamie Baker. "You hold onto it as long as you can until competitive pressures force you to back off."

Source: Wall Street Journal

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