September 30, 2013

Airlines promise return to civility - for a fee, of course

The industry has discovered that passengers are willing to pay for such perks as delivery of their luggage and a day pass to the lounge.

By Scott Mayerowitz
The Associated Press

(Continued from page 1)

click image to enlarge

Passengers check their luggage at the Delta counter at Hartsfield-Jackson Atlanta International Airport, in Atlanta last week. Delta customers have the new option to purchase an upgrade that includes a second bag to check, among other perks.

The Associated Press

Now airlines are recasting fees as trip enhancements.

Travelers like Nadine Angress of Mansfield, Mass., see the value. Her recent late-night US Airways flight home landed past 6-year-old son’s bedtime. She had to work early the next morning. So, for $30 she bypassed the baggage carousel and had the suitcase delivered.

“That was a very reasonable price to pay,” Angress says. “It’s making your life easier.”

U.S. airlines collect more than $6 billion a year in baggage and reservation change fees. They also collect $9 billion more from selling extras like frequent flier miles, early boarding and seat upgrades. Together, the fees account for 10 percent U.S. airlines’ revenue.

Fees provide airlines with another advantage: The Internal Revenue Service has said since they aren’t directly related to transporting passengers, they aren’t subject to the 7.5 percent excise tax travelers pay on base fares. Taxing fees would give the government an extra $1.1 billion a year to fund the Federal Aviation Administration, runway upgrades and air traffic control improvements.

Without the fees, experts say fares would be 15 percent higher.

“You’re either going to go out of business or find a way to cover” your costs, says Robert E. Jordan, Southwest Airlines’ executive vice president and chief commercial officer.

Southwest has held off charging for most checked bags. But it sells plenty of other add-ons.

Recently, it introduced a way for people at the back of the boarding line on some flights to cut to the front for $40. It’s not a blockbuster seller – one person pays up every two flights – but with 3,600 daily flights, that nets $70,000 in extra daily revenue or $25 million a year.

Airlines now alter fees based on demand. United Airlines used to sell its Economy Plus extra legroom seats for one price per route. Today, aisle seats cost more than middle seats; prices are higher on popular flights.

That change in thinking has helped United increase fee revenue by 13 percent this year to more than $20 per one-way passenger.

Airlines are also starting to bundle items. Passengers purchase items they might not necessarily buy alone; it also simplifies the dizzying array of offers.

“I don’t want you to have to do the math every time,” says Rick Elieson, managing director of digital marketing at American Airlines.

American offers a package for $68 roundtrip that includes no change fees, one checked bag and early boarding. Delta is experimenting with a $199 subscription that includes a checked bag, early boarding, access to exit row seats and extra frequent flier miles on all flights a passenger takes between now and Jan. 5.

Airlines say the fees bring a sense of fairness to the system. Why should a passenger with a small carry-on subsidize a family of four, checking suitcases?

Jamie Baker, an airline analyst with JP Morgan Chase, likens it to a meal at a restaurant.

“The sides are not included in the price of a steak,” he says. “Airline ticket prices should reflect the costs incurred by the individual passenger.”

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