Say Goodbye To Cheap Flights, Maybe Peanuts Too

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Tue Apr-08-08 05:00 PM
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Say Goodbye To Cheap Flights, Maybe Peanuts Too

Say goodbye to cheap flights, maybe peanuts too
Airlines are scrambling to find new sources of revenue
By Jennifer Waters, MarketWatch
Last update: 10:57 a.m. EDT April 8, 2008
This update of a story originally published April 7 corrects the identification of David Castelveter of the Air Transport Association.
CHICAGO (MarketWatch) -- Look out travelers, flying just got tougher -- and a lot more expensive.
The shutdown of ATA Airlines, Aloha Airlines and Skybus Airlines -- all three within one week -- signals a turbulent ride for business and vacation passengers alike as the nation's largest carriers struggle with soaring fuel prices and a limp economy

Consumers can plan on shelling out considerably more money to fly and they'll have fewer choices when doing so. At the same time, they will be asked to pony up for services that once were part of the cost of a ticket, according to experts.
"The days of discount flying are over," said Julius Maldutis, president of consulting firm Aviation Dynamics and a veteran industry analyst. Of course, there will always be specialty-discount carriers like Southwest Airlines and JetBlue, but Maldutis warned that flying for cheap on major carriers will go the way of the horse and buggy.
"It's not only because of higher oil prices," he said, "but also because of the shrinkage in terms of the domestic capacity by the major carriers and the smaller specialized carriers shutting down."
The airline industry, never fully recovered from the aftermath of Sept, 11, is now grappling with the precipitous and seemingly unwavering climb in the costs of jet fuel. At more than $108 a barrel, the cost of crude oil is two-and-a-half times what it was in 2003 and last year emerged as the industry's biggest cost item, outpacing labor. Fuel now accounts for 30% to 35% of an airlines' cost, nearly three times its historical average.
"These high fuel prices are creating unbelievable challenges for the industry," said David Castelveter, vice president of the Air Transport Association. Every $1 increase in the price of crude oil cost the aviation industry $465 million annually, he said.
That has prompted carriers to pull flights off schedules and to scale back hiring and expansion plans while coming up with new ways to raise revenue.
"All the low-hanging fruit has been picked," Stempler said. "They're trying to conserve fuel by putting planes on the ground and reducing service to small communities."
Fewer planes equals crowded seats
Calyon Securities analyst Ray Neidl expects the number of planes flying in the U.S. will fall by 5% this year. He's also projecting that the industry overall will lose upwards of $1 billion this year.
"They're cutting back capacity to try to support the ticket-price level," Neidl said.
In other words, the fewer flights there are between, say, Chicago and Dallas, the more the airlines can justify higher prices.
It also means that flights will be crowded -- yes, more packed than they already are -- and that getting a seat in an exit row or bulkhead could cost extra.
"Flying is going to be like mass transit," Neidl said. "Customers want to pay the bare minimum for tickets. Those who want extra services, like baggage and meals, can buy them."
On Thursday, Northwest Airlines became the latest major carrier to say it was trimming the number of planes it would put in the air. The Minneapolis-based carrier also said it was hiking fares and tacking on fuel surcharges and baggage fees.
Airlines often operate like a herd. If one decides to charge $25 to check a second bag and customers don't complain too much, then the others will follow suit. Fuel surcharges, for example, didn't start to surface until the middle of last year and by the end of 2007 averaged about $20 per domestic roundtrip. It's now about $50 on domestic flights and nearly four times that on international flights. (Southwest Airlines hasn't added fuel surcharges.)
The second-bag-will-cost-you initiative was launched in February by United and, besides Northwest, has been copied by US Airways, Delta and on Friday, Continental Airlines. American Airlines has filed a request to charge the baggage fee in Canada and has said it was considering the move in the U.S.
"We are changing expectations by charging for additional services our customers use," United Chief Executive Glenn Tilton told the U.S. Chamber of Commerce last week. He said only one out of four customers checks a second bag. "We think it appropriate that customers who make that choice -- and not the other 75% --pay for those bags."
He talked about needing to change the "historic dysfunction" of the industry, indicating that consolidation and more revenue-boosting initiatives were on the horizon.
"The case for change is more compelling today than it was five years ago," he said.
Watch those miles fly by
Maldutis said one of the first perks to get hit will be frequent-flyer programs. "Your frequent flyer mileage is 'bootkiss,'" Maldutis said, making up a word for worthless.
As carriers cut domestic service, they also pare seat availability for frequent-flyer redemptions. "It's becoming increasingly difficult to get your free tickets for mileage now and it's going to get even worse," Maldutis said. "Even to the point where it will be virtually impossible for you to redeem those free tickets."
Again, fewer flights mean fewer seats available at higher costs. Experts encouraged consumers to book flights well ahead of departing dates.
Airlines are not apt to push customers too far during the peak summer season but are likely to tighten the screws even more in the fall. A weaker economy, however, could prompt carriers to cut fares but it may also force other airlines into precarious financial positions.
The fuel surcharges, however, may never go away. And don't ever count on getting a free meal again in coach. "There's probably going to be some nice airlines that will offer some premium services," Neidl said. "But it mostly will be pay for what you get."