Oil Is Cheaper, But Airline Fees Are Here to Stay

[question everything]

THE MIDDLE SEAT
SEPTEMBER 17, 2008

Oil Is Cheaper, But Airline Fees Are Here to Stay
Carriers Have Long Wanted To Impose a la Carte Pricing; Paying for What You Use

By SCOTT MCCARTNEY

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 over $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? 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.

(snip)

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... US Airways says the pay-for-what-you-use approach amounts to a "business model transformation." Instead of spreading the cost of baggage handling over all passengers, including those who don't check bags, the airline thinks it's fairer to charge bag-checkers for the service. Similarly, US Airways charges $2 for coffee, soda or bottled water, $50 to "process" a frequent-flier travel award to Hawaii and $35 just to buy a ticket in person at the airport. No matter the price of fuel, President Scott Kirby sees the change as permanent. "The industry is evolving to a more a la carte model," he said. "Airlines can't continue to operate as they did."


(snip)

Air France, a unit of Air France-KLM SA, and Singapore Airlines Ltd. have both cut fuel surcharges on international tickets, and Northwest and Deutsche Lufthansa AG, among others, have reduced the fuel surcharge they place on cargo shipments. With international air fares, fuel surcharges are added on to base fares much like taxes and security fees. Since they are broken out -- allowing travelers to see exactly how much the fee is costing them -- airlines may face more pressure to reduce them if fuel prices continue to drop. But, domestic U.S. fares, by government rule, don't have separate fuel surcharges for customers to see -- it's all baked into the basic fare. So for domestic fares, there may be less pressure to drop prices because of fuel.

(snip)

Most airlines will still report big losses this year, and the industry is still paying fuel costs more than 50% higher than last year. Fuel makes up about 40% of the cost of flying for commercial airlines... The sharp drop in oil prices over the past few weeks has dramatically changed the financial outlook for airlines. The difference between buying jet fuel when crude oil is $147 a barrel versus $100 a barrel is $15 billion a year -- a staggering saving for airlines.

(snip)

http://online.wsj.com/article/SB122150979192738219.html (subscription)

[phantom power]

1. An observation...

if oil hadn't been recently trading at $147, the topic of conversation would be "goddamn, can you believe that oil is $90???"

It's not like jet fuel is suddenly dirt cheap. The airlines are still going to be reeling from fuel costs.

[question everything]

5. I'd rather they raised the price of a ticket than being nickeled and dimed

at every turn.

Earlier this year, when oil started going up and the airlines started chocking, I wondered why they did not raise prices.

The irony is that for a while I was trying to travel with a carry on, but the bins above the seats are so small that if you are not first to board, you end up having to check it. (Hmmm... wonder whether they would demand their $15 or $20 before they would do that..)

[phantom power]

11. I hate all the surcharges too. As I understand it...

the reason they are doing this is because the first airline to actually raise ticket prices is going to lose the game of Mexican standoff. I guess that this way, they get to post lower fares and keep at the top of the list on Orbitz.

[DFW]

2. I got hit for about $350 in baggage fees this summer

When I was back Stateside this summer, I traveled from L.A. to Dallas to Baltimore to Denver to Dallas to Washington by air. There was no extra baggage fee from the transatlantic portion of my trip, but my first domestic legs from L.A. to Dallas and Dallas to Baltimore cost me $40 each for my first (415) and second($25) bag. Then, because I picked up my guitar in Boston, they hit me for $165 EXTRA from Boston to Denver. I left some stuff off in Denver, and so had only two bags again from Denver to Dallas to Washington, although one of them was over 50 pounds, and I got hit for "overweight." I bought as much stuff as I could inside the terminals after security, as I find it insulting for passengers to have to pay for drinks in a situation when they are exposed to dehydration and need to drink something.

Whatever the fare you pay for a domestic air ticket these days, check out what the REAL fare is. It's like renting a car. When you add on all the extras, it's double the rate quoted. Air travel inside the USA is getting close to this.

I predict that if the oil price declines further, some airlines will start to advertise that they are scratching some of these annoying fees, and that others, so as not to lose business, will swiftly jump on the bandwagon--just as swiftly as they jumped on the bandwagon to add fees for just about everything except an oxygen surcharge for breathing during flight (I hope I didn't give any airline mid-level managers any ideas with that.........)

[question everything]

6. Southwest already does it, however if you are not served by them

you are out of luck. Any such competition will take place only on routes with a real competition. And, with so many small airports being wiped out, they are really at the mercy of the airlines.

Score one more example of the Reagan Legacy: de-regulation of the airline the energy and the financial industries.

[DFW]

10. It's not enugh to be served by them.

They also have to go where you are going. Southwest serves Dallas, of course, they
even fly out of Love Field, which is far closer to me than the DFW airport. But
they don't have direct flights to Washington or Denver, let alone Paris or Düsseldorf.

[SheilaT]

3. $35 just to buy a ticket in person.

The airlines are doing their best to eliminate any human employees. Which means that whenever flights are delayed or cancelled there's simply not enough staff to handle everyone in a timely manner.

Several years ago USAir tried to claim that things were f*cked up in Philadelphia around Christmastime when a lot of flights were delayed or cancelled due to bad weather because many agents had called in sick. Not true. It was a simple shortage of staffing. There are barely enough employees to cope with everyone when everything operates just fine. It's a complete cluster-f*ck when things aren't going normally.

[DemoTex]

7. It was the Philly Phactor!

Know what I mean, Sheila?

Capt. Mac

:hi:

[SheilaT]

9. Yep. I know what you mean.

Back at ya, Capt. Mac.

:hi:

Check PM

[pnutbutr]

4. reduce flights and

raise prices. Exactly what the airlines need to do. After having worked with the FAA and almost becoming a controller I can say that there are way too many airplanes in the sky and it is constantly getting worse. Reduce the number of flights, raise ticket prices, increase safety and bring back the amenities. I refuse to fly commercial airlines and instead take the train. Amtrak, funded solely by the government and despite having it's budget constantly slashed still provides much safer and relaxing travel with excellent amenities.

[question everything]

8. Replace commuter planes with bigger ones and, yes, cut the number of

flights. But many airlines switched to smaller planes that travel more frequently to provide a better selection for travelers, adding to congestion which defeats the convenience of flying whenever one wants.