The airline world is being roiled by an “unbundling” trend. Once the costs of baggage, meals, drinks, pillows and blankets were included in fares.
Today, most airlines are beginning to charge for these as extras — add-ons to the basic charge of getting passengers from Point A to Point B. But not all of them.
This change in the industry is attributed to the airlines’ need for more revenue in the age of high-priced jet fuel. However, the move to this payment for each phase of service is also a result of new airline revenue platforms rolled out by Amadeus and other major computer reservation systems that now allow airlines and other travel providers to charge for individual items that were once bundled in the total price.
Struggling airlines are jumping at the chance to collect additional revenue. Others, like Southwest Airlines, are sticking to all-inclusive pricing; and yet others, such as Delta Air Lines and Continental Airlines, are blending some charges for additional services like extra baggage with a menu of included items like meals and free first-checked bags.
Decisions such as these to not charge for extras are high-stakes marketing decisions. They come at millions of dollars of cost from potentially lost revenues. These “forgone revenues” affect Southwest, Continental and Delta’s bottom lines just as much as new income streams from the first-checked bag policies impact the profits of American, United, US Airways and Northwest. According to a recent post by Cranky Flier Brett Snyder, they could backfire.
Southwest needs this campaign to work, otherwise we could see fees coming from them as well. Since nobody else is really going the “no-fee” route, they’ve got a very strong position here. The biggest problem? It’s going to be really tough to tie revenue back to the no-fee stance. CEO Gary Kelly has said so himself, so it’s mostly going to have to be a leap of faith that the value of “no-fees” is worth the cost of not having any.
Not charging for all the extras means less revenue. Not charging for a first-checked bag and providing real food on flights adds costs to an airline’s operation. These are real costs that are looked at a part of their marketing expense. Southwest, Continental and Delta are betting that they will attract enough passengers with their decisions to curtail fees to make up for the “forgone revenues” of fees uncharged.
Southwest has recently started a major advertising campaign to push the savings that they offer over airlines that charge additional fees. A recent ad with passengers singing “hallelujah” is making TV viewers smile across the country and hopefully getting the message across that additional charges add up rapidly. Here is another ad that began Southwest’s “no fee” campaign.
Since Southwest is so wedded to the “no-fee” message, I expect it to stick to its guns for a while. Delta and Continental not charging for the first-checked bag and Continental serving meals for free on domestic flights might be in a more precarious position.
Airline passengers need to vote with their wallets as these fees become more evident. To this point, the additional fees are flying under the radar so to speak. Once consumers realize how much the additional baggage charges and other fees cost, they should gravitate to airlines that don’t have those charges.
If they don’t, those airlines that do not charge fees will have no reason to hold the line against higher fees and more of them.
