My friend Addison Schonland said it best: Anyone who thinks baggage fees are going away is living on another planet. And as if to underscore that point, IdeaWorks has released a survey that shows ancillary revenue is up 345 percent from 2006, to an eye-popping $10 billion last year.
Is this a losing fight for airline passengers?
I’ll get to the answer in a second. But first, let’s have a look at these incredible numbers.
The most impressive one is ancillary revenue as a percentage of total revenue. In other words, what portion of an airline’s revenue comes from fees? It suggest US-based Allegiant, not Ryanair, is the fee leader.
Allegiant is a strange company. On one hand, it hits customers with onerous “convenience” fees for paying by credit card, but on the other hand, it allows passengers to change the name on a ticket, which no other major American airline permits. Of course, it charges a fee for a name change.
Here’s IdeaWorks’ spin on ancillary revenues:
Ancillary revenue and the magic elixir of baggage fees did not singlehandedly save the US airline industry. But it’s easy to imagine the number of airline executives who silently murmured words of thanks for the millions of dollars it delivered to bottom lines during 2008. At the same time, low cost carriers around the world have been making continuous enhancements and are generating higher levels of ancillary revenue.
If you’re interested in 2009 data, check out this Bureau of Transportation Statistics page, where you can find luggage fees and change fees by airline. (Hint: it’s getting worse.)
It’s clear that the big legacy carriers — American, United, Delta — have embraced a la carte fees.
They claim their customers, have, too. They’re wrong about that.
Fact is, this has happened so fast, we’re confused more than anything else. We’re not quite sure how we were quoted $150 for a flight but ended up paying $230.
Can we fight these fees? No — and yes.
What airlines have done is really clever. They’ve “unbundled” their fares, removing the “convenience” of booking by credit card, the ability to make a reservation, to check a bag, to order a drink, and spun it as a pro-customer activity. “We’re just giving customers what they want — low fares!” they say.
Sadly, some of the more gullible passengers have bought it.
The truth is a little more complicated. Airlines took the fares and, without lowering them, unbundled.
Think of this in hotel terms. A property offers a $100 a night rate. One day, it adds a mandatory $20 “resort fee” but it keeps its rate at $100 a night. How much does one night at the hotel cost? If you said $120 a night, you’re right.
Airlines want you to think the rate is still $100.
Here’s where all of this is headed: If this is allowed to continue, airlines can continue offering cut-rate fares to the point where ticket prices fall to zero. Then they add taxes, fees, add-ons and a la carte charges until they’ve made enough to stay in business.
This is absolutely wrong, and what’s even more outrageous is that the government is letting the airlines do this. The Transportation Department has done virtually nothing to protect passengers against these lies. It could if it wanted to. In fact, a simple rulemaking by the DOT could throw a wrench in this foolish a la carte scheme.
If the government mandated that advertised fares include the ability to check a bag, to make a reservation and pay for the ticket with your credit card, it would take the wind out of the a la carte movement’s sails.
By forcing airlines to display what every airline passenger considers to be part of a reasonable airline ticket, and then allowing us to “opt out” of items like a first checked bag, the government will ensure the public isn’t deceived when they go fare shopping.
The technology exists to create these fair fare displays.
Who doesn’t want fares rendered like this? Airlines don’t want it, because they are profiting from their deception. A few airline apologists oppose it, too — either for ideological reasons (“We don’t want the government getting involved”) or because they believe the airline spin about just giving us what we want.
The most common counter-argument I hear is that no other business is forced to display a full price. But that’s wrong.
Let’s take a loaf of bread as an example. When I buy a baguette at the store, it costs 99 cents, with a 7 percent sales tax.
If an airline were selling it, the loaf would cost 49 cents. But they would add a packaging fee, a stocking fee, and a convenience fee for paying by credit card. Ridiculous? Absolutely.
A la carte fees are not a losing fight for passengers. It’s all about disclosure. If airlines are forced to reveal these onerous new charges up front, then the next IdeaWorks study will show fees that are more reasonable — and airline passengers that are considerably happier.
{ 8 comments… read them below or add one }
Thank goodness they’re finding ways to stay in business. That’s not sarcasm – I’m serious. That way, when I want to go to some exotic, far away destination, or visit family, or go to a meeting, I can do it for an incredibly low price in a short period of time. No matter what you call the charges, the bottom line is that it’s an incredible deal. Don’t like it? A simple solution: Don’t fly. Want a more complex solution? Start your own airline. Then you can listen to the complainers whine about being charged too much, while you lose billions of dollars because they paid so little.
Sorry Christopher, your “resort fee and bread logic” simply doesn’t hold up. The simple fact is that you can indeed just buy the airline ticket at the advertised price and receive the full product, that being transportation from X to Y. Those two comparatives are completely specious because in the case of the resort fee, you (a) don’t receive any additional product or service for it and (b) have to pay it in any stead. In the case of the “bread logic” you don’t have the option of telling the bakery that you don’t want the packaging (have you asked?). It comes that way. I have been flying for more years than I care to count and in 99.9% of my travels have never checked a bag (and no, I’m not one of those people who carry all of their life’s posessions with them, I carry one small roll aboard, no laptop, no backpack, etc.). Why, then, should the fare I pay subsidize those that insist on checking baggage? Checking a bag is no more a requirement than buying alcoholic beverages on board is. All of the airline websites clearly list the fees they charge, so consumers need to inform themselves before they buy. This isn’t some “truth in lending” issue, it is simply an issue of paying for what you use. I for one prefer it that way.
@Ben, I would argue that you are not getting a usable product when you book one of these fares.
The ability to make a reservation, to check a bag, is something almost everyone wants. Just like the plastic wrapper on a loaf of bread.
You couldn’t possibly be in favor of quoting a price that virtually no one will pay and then slapping one poorly-disclosed surcharge after the next.
That’s called lying in my book. It’s why passengers are so upset.
Sorry Christopher. I totally disagree. I resent car manufacturers bundling options (you can’t get the sunroof without the 20″ wheels, or whatever) when all I want is the sunroof. In the “old days” options on cars were line item selectable. Unlike the airline industry who traditionally “bundled” everything, whether you used it or not (I didn’t), car manufacturers decided they could increase their revenues by essentially forcing you to buy options you didn’t want. I also totally disagree with your comment that an airline seat without the ability to check a bag is an “unusable product”. Following that logic apparently I have never received what I paid for in all the years I have been flying and didn’t check a bag. To the contrary, my opinion is that I have, in fact, been paying for YOUR ability to check a bag. You will never be able to convince me otherwise.
@Ben, you seem to be buying the airline industry’s spin, when it comes to ancillary revenues. That’s too bad.
No one is saying airlines can’t unbundle. It’s all about disclosure.
If you want to quote a fare — or for that matter, the price of a loaf of bread — my point is that you need to quote a realistic price.
A fare that’s stripped of the ability to use a credit card to purchase it, to reserve a seat, to bring a bag, is not realistic.
If you want to unbundle, then fine — do it after you’ve quoted a real fare. But don’t bait me with a fare that I’ll never pay.
As I mentioned in previous posts, before long, we’ll be seeing “zero” fares on some flights (we already do in some countries). How does that have anything to do with reality?
Christopher, after this I’ll be quiet.
“A fare that’s stripped of the ability to use a credit card to purchase it, to reserve a seat, to bring a bag, is not realistic.”
(1) No US airline (that I’m aware of” charges a credit card fee for purchasing a ticket. The fee, in the way of CC company charges is embedded in the price. If you know of one, please provide specifics.
(2) Southwest (king of the “no fees” advertisements) doesn’t even have reserved seats, so how does this square with your logic?
(3 You already know my stance on checked bags
I think you may be basing your comments on the Ryanair model in Europe. I have personal experience with this and would agree that, taken to that level, it is deceiving. I recall buying a ticket for 1 pound on them that ended up costing 50 pounds or so by the time it was all said and done. Realistically, though, no US airlines have done that and I (respectively) still think you’re all wet.
@Ben, I too am going to let this be my last.
Spirit and Allegiant charge convenience fees for buying their tickets online with a credit card.
True, Southwest has no assigned seating, but you pay extra to be in the first boarding group. Spirit, Allegiant and AirTran charge extra for a “confirmed” reservation.
Your unfortunate refusal to see past the airline spin makes it far more difficult to rally support for my common-sense idea, which is to ask airlines to tell the truth.
But when you book your first “zero” fare, you’ll understand. Unfortunately, it will be too late.
All fees must:
1) Be accurately and prominently disclosed
2) Be avoidable
If not, they should be required to be included in the price. That’s it. I completely disagree with the argument that in order to sell a ticket to fly a human being from Point A to Point B they also should have to offer a free shipping service. If you don’t like the airline baggage charge, get the thing shipped by another company, fly Southwest, or pack light.