Airlines feeding frenzy on fees…
Earlier this week, I bought an airline ticket to Washington for a meeting next week. In the past, I’ve taken Amtrak or my new favorite, Bolt Bus, but flying — even booking just a week in advance — was actually $100 cheaper than the train and a lot quicker than the bus. Unfortunately this morning, the meeting date was changed and the cheapo airfare is suddenly a lot more expensive once those change fees are factored in.
This isn’t news to anyone who flies regularly — meetings get moved around all the time at the last minute. But yesterday’s WSJ put some of the fees into perspective. The article, citing a new Department of Transportation report, shows that these fees are costing people $2 billion a year. AMR Corp. (AMR), parent company for American Airlines (which I still haven’t been back on after last year’s Dallas fiasco) raked in $116 million in cancellation fees during the first quarter and another $108 million in baggage fees.
In the current crop of airline Qs, there’s not nearly as many details on the fees. But AMR, which filed its 10-Q on July 15, disclosed that “other revenues” which include cancellation and baggage fees, were up 7% to $565 million. Just to put that into perspective, that’s higher than revenues for AMR’s regional airlines. In its 10-Q, Delta (DAL) said its other revenues climbed by $81 million during the quarter “due to new or increased administrative service charges and baggage handling fees and higher SkyMiles program revenue.” USAirways (LCC) also disclosed a hefty amount of fee income during the quarter for what it described as “ancillary items”. Even footnoted favorite JetBlue (JBLU) said in its 10-Q that other revenue was up 7% “due to higher change fee and excess baggage revenue resulting from increased change fee rates and the introduction of the second checked bag fee”.
Of course, the question to ask is how much longer the airlines can continue to rely on these fees to help goose revenues. There’s a fee for pretty much everything and other than charging to use the bathroom on the flight, it’s hard to see how this pattern can continue. Indeed, some customers are already fighting back. As Delta noted in its Q, several lawsuits in different jurisdictions have been filed against Delta and Airtran challenging the baggage fees for violating the Sherman Anittrust Act.
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Posted in Tags: 10Qs, airlines |
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July 31st, 2009 at 10:35 am
This kind of reliance on unsustainable revenues that don’t really have any direct relationship to the actual services provided is not only ethically challenged but almost certainly a strategic mistake of significant proportions. It is also a clear sign of failed oversight and risk management by these company’s boards. There are any number of banks engaged in the same sort of folly, where management is often richly rewarded for upping revenues by raising overdraft and other usurious penalty fees. Is it any wonder these two industries are in so much trouble?
August 1st, 2009 at 9:29 am
MICHELLE,
Thanks for highlighting this problem and the excellent discussion. I have shared this with others at BusinessWeek’s Business Exchange:
http://bx.businessweek.com/delta-air-lines/airlines-feeding-frenzy-on-fees/12620846601039054973-3c8880032f57b7a8124da645711e13d4/
Your discussion hits home with me because I recently experienced it myself. You can read what happened here:
http://forum.sonshi.com/showthread.php?s=&threadid=3130
RIC,
I agree with you 100 percent. As a businessman I can clearly see Delta and other airlines are crossing a line and yes it is now an ethical issue. The reason why is sometimes travelers don’t have any other option but to pay these hefty fees and airlines take advantage of that. Doesn’t take much to grab market share if a new airline company (or an existing one) disrupts the industry with innovative ideas like, you know, one price and no surprise fees … essentially treating the customer fairly.
August 2nd, 2009 at 9:55 am
why is it that people have expectations and demands of airlines beyond transportation and carrying oneself? I stay at the Ritz or Hyatt or Hilton and they charge me $48 a night to park even though my room is $300. Room service is marked up 2-3 times beyond normal. The ritz even has a resort service fee. I rent a car in San Francisco and with all the city taxes it amounts to 26 percent..that is unethical. Or I go see a movie and get charged $11 for admission and then $4 for popcorn and $5 dollars for a soda!!! THat is unethical and crossing the line and no one flinches.People expect and demand to fly cross country for 200 or 300 dollars and then pony up 300 for a hotrl and $50 for a steak. These are all service industries and what they have in common is pay to play. No one forces the parking or popcorn on me. The airlines are kind enough to allow one carry on and yet selfish people bring two or three hiden and do all sort of convulted things to avoid fees.
The days of free lunch are over. Quit expecting things that cost money. You want to carry a refrigerator sized bag to tour Europe then pay for it. Demanding and having the audacity to believe it is unethical to charge for a service is the ultimate in arrogance. These are the same people who works for firms that I am sure bill hundreds of dollars an hour or provide a driver for their people at high rates.
Get over your expectations with the airlines. You “beat them up long enough” now help them. Or go by car and take 6 times a s long.
August 3rd, 2009 at 2:58 pm
Is the “Bolt Bus” link supposed to go to a page that mentions Bolt Bus somewhere? If so, it’s not.
August 3rd, 2009 at 3:19 pm
@NewHorizon: Thanks. I fixed that. Everyone needs an editor.
@Ed: I think you miss the point of this post. It’s more about earnings quality and the inability to keep growing revenues by coming up with new things to smack a fee on.
August 4th, 2009 at 9:59 am
I guess the airlines will do it until the phone companies eliminate their “government regulatory recovery fee” which these phone companiesy remind us “is not a tax but a fee to recover the cost of complying with government required mandates”. Hmmm, why isn’t this covered by the cost of the service? False advertising anyone?
Now, contrary to what ed says above, what the airlines (and related airport security measures) have done is equalize the cost of air travel with land travel by rented auto for destinations 8 hours away or less. It is now far cheaper and less hassel to travel by car to these destinations since you often need a complete day budgeted to fly, transfer, fly, and rent a car. And that doesn’t even include some sort of airline or weather delay which can bodge up airports unrealated to the delay…
August 4th, 2009 at 2:58 pm
Airlines seem to be weighing to heavily on air passenger bags. They have increased and add restrictions to air travel that boost up their overall profit. How can they predict such chaos on their books. Perhaps the stimulus money will get to them when customers prefer the train or driving because of cost.