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Airlines promise a return to civility, for a fee

By Scott Mayerowitz

AP Airlines Writer

LAST UPDATED: 03:23 a.m. HST, Sep 30, 2013

NEW YORK »  Airlines are introducing a new bevy of fees, but this time passengers might actually like them.

Unlike the first generation of charges which dinged fliers for once-free services like checking a bag, these new fees promise a taste of the good life, or at least a more civil flight.

Extra legroom, early boarding and access to quiet lounges were just the beginning. Airlines are now renting Apple iPads preloaded with movies, selling hot first class meals in coach and letting passengers pay to have an empty seat next to them. Once on the ground, they can skip baggage claim, having their luggage delivered directly to their home or office.

In the near future, airlines plan to go one step further, using massive amounts of personal data to customize new offers for each flier.

"We've moved from takeaways to enhancements," says John F. Thomas of L.E.K. Consulting. "It's all about personalizing the travel experience."

Carriers have struggled to raise airfares enough to cover costs. Fees bring in more than $15 billion a year and are the reason the airlines are profitable. But the amount of money coming in from older charges like baggage and reservation change fees has plateaued. So the airlines are selling new extras and copying marketing methods honed by retailers.

Technological upgrades allow airlines to sell products directly to passengers at booking, in follow-up emails as trips approach, at check-in and on mobile phones minutes before boarding. Delta Air Lines recently gave its flight attendants wireless devices, allowing them to sell passengers last-second upgrades to seats with more legroom.

And just like Amazon.com offers suggested readings based on each buyer's past purchases, airlines soon will be able to use past behavior to target fliers.

"We have massive amounts of data," says Delta CEO Richard Anderson. "We know who you are. We know what your history has been on the airline. We can customize our offerings."

Other airlines are experimenting with tracking passengers throughout the airport. In the future, if somebody clears security hours before their flight, they might be offered a discounted day pass to the airline's lounge on their phone.

Airlines have yet to find the right balance between being helpful and being creepy. So, for now, most of the data is being used to win back passengers after their flight is delayed or luggage is lost.

"We want to get back to a point where people feel like travel isn't something to endure, but something they can enjoy," says Bob Kupbens, a former Target executive and Delta's current vice president of marketing and digital commerce.

Most passengers select flights based on the lowest base fare. The online travel industry plays up that price sensitivity with sites named CheapOair.com, CheapTickets.com and InsanelyCheapFlights.com.

When airlines try to raise fares, they are met with resistance.

"Customers are very quick to either change travel plans, or use another carrier or not travel at all," says Jim Corridore, an airline analyst with Standard & Poor's.

In the past three years, airlines have tried to hike fares 48 times, according to FareCompare.com. During 29 of those attempts, bookings fell enough that airlines abandoned the increase.

Most fares today don't cover the cost of flying. While the average domestic roundtrip base fare has climbed 3 percent over the past decade to $361.95, when adjusted for inflation, the price of jet fuel has nearly tripled.

When oil prices spiked in 2008, airlines added checked baggage fees. Passengers still bought tickets on the base price and didn't think about the extra expense until the day of travel.

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 six-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 E. Chat, 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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nodaddynotthebelt wrote:
One thing that is not mentioned here regarding fees is the fact that United Airlines, for one, will not reschedule flights regardless of extenuating circumstances. If you are hospitalized and cannot leave as scheduled, you will not be given the opportunity to change your flight without a high fee. Someone I know found out the hard way. He actually was at a hospital for a surgery that took longer than planned. The surgeon wrote a letter on behalf of the patient to United Airlines who said that they could not give an exception. The patient ended up purchasing a ticket from another airline to go home as the cost of a fee tacked on to the return ticket would have made it more costly. United Airlines has no heart and I would not fly United Airlines at all costs. Basically, United took payment for a seat that was not used by the customer. Now, that, is not how you do business. If you are planning to go to the mainland for a surgery, you should be aware that United Airlines will not give you an exception even if you are dying. Unless you are absolutely sure that the surgery will not be delayed you should avoid paying for a two-way ticket.
on September 29,2013 | 11:37PM
2NDC wrote:
Travel insurance is a wonderful thing. Too bad the individual in question didn't purchase any. Had they read the "terms and conditions" when they purchased the ticket, they'd be informed of the policy as well. Not to be a dik or anything like that, but in this day and age it's "buyer beware".
on September 29,2013 | 11:50PM
Adam1105 wrote:
There are too many Americans who love being serfs and support what is happening — the corporate destruction of our country.
on September 30,2013 | 01:24AM
localguy wrote:
Actually UA got double payment for the seat. You know they sold it at a higher price. I do wonder why the traveler just didn't let his ticket sit as a credit to be used on a later flight. Also, appears he didn't try hard enough to get the problem fixed.
on September 30,2013 | 07:34AM
allie wrote:
UAL is not the UAL of old hon
on September 30,2013 | 11:23AM
stingray65 wrote:
Highway robbery !! How would we know that, that seat was not being sold to the next passenger? The airlines got paid twice for one seat!! Am I correct? They always do that the last minute for extra passenger willing to pay the price..
on September 30,2013 | 02:22PM
IAmSane wrote:
UA is probably not the only company that does this. Not saying that that makes it right, of course.
on September 30,2013 | 05:29PM
poidragon wrote:
A fee is still just a fee, no matter how you dress it or what you name it! Reputation used to mean quite a lot to an airlines, but times change and the airlines did not change with the times, and so their good name and reputation were tarnished by corporate greed and the rising costs of airfares and the exorbitant fee's charged by the very same airlines to cover their expenses and pad their profit margin. Good luck with trying to woo back the customers you lost because of the 'fee wars,' until the economy gets better and more Americans get back to gainful employment, money is going to be tight; I am also quite sure that Congress will be addressing the 'extra profits' being generated by the Airline cmpanies and will work on find a way to legislate their way to getting their cut for 'good ol' Uncle Sam!'
on September 30,2013 | 03:16AM
inHilo wrote:
Almost anything will improve flying but all these fees sound like soon some of us will be traveling in steerage. First class, second class, third class, and a bench next to the boiler room.
on September 30,2013 | 05:35AM
Numilalocal wrote:
Or hanging over the side holding on for dear life!
on September 30,2013 | 04:32PM
mikethenovice wrote:
Extra third leg room?
on September 30,2013 | 06:23AM
localguy wrote:
Only when Hooters had their own plane.
on September 30,2013 | 07:35AM
IAmSane wrote:
on September 30,2013 | 05:30PM
mikethenovice wrote:
Fees are not subject to IRS tax collection. Another loophole for the shareholder leaving the US Treasury in debt for the taxpayer to bail out. Now I get it.
on September 30,2013 | 06:26AM
localguy wrote:
Another lying in your face airlines bureaucrat. John F. Thomas of L.E.K. Consulting lies when he says, "It's all about personalizing the travel experience." No Johnny boy, it is not. We can see right through your lie. It is all abut making as much money off each passenger as you can legally get away with. I have a deal for you. When I pay for checked baggage as a service and it does not arrive at the airport with me, you refund my money for failing to perform the service. No credit, no voucher, give me my money back. Nothing teaches fools a lesson faster than giving money back. And when my plane is delayed due to mechanical or other means, never, ever, lie to me about the problem. You lie, everyone flies free. For too many years airlines blamed everything on weather, knowing it was a lie as research showed. Fact is most airlines have proven they cannot be trusted. Just give us a safe plane, leave and arrive close to on time, get my bag there with me. How hard is that? Pretty hard when airlines have to dream up ways to charge for their failures. Give us a break.
on September 30,2013 | 07:32AM
allie wrote:
on September 30,2013 | 11:24AM
sailfish1 wrote:
They should charge more for big people and less for small people. Weight is a big factor in flying costs and, in addition, a big guy takes up more space and makes it uncomfortable for people who have to sit next to them.
on September 30,2013 | 07:04PM
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