Monday, July 25, 2016

OPINION: Airlines’ nickel-and-dime pricing must be controlled

A recently released report detailing the increase in so-called ancillary revenue being raked in by many of the world’s airlines renewed my ire about what the airlines call à la carte pricing but which I and many of my fellow fliers refer to as “being nickel-and-dimed.”

The report, the 2015 Top 10 Ancillary Revenue Rankings, is the result of research conducted by IdeaWorksCompany and sponsored by CarTrawler. It said the 10 airlines that reported the most ancillary revenue took in nearly $26 BILLION in 2015. The Big Three U.S. carriers, United (NYSE:UAL), American (NASDAQ:AAL) and Delta (NYSE:DAL) were the three airlines that took in the most, a total of $14.7bn among them. No-frills carrier Southwest (NYSE:LUV) was fifth at $2.12bn and Alaska Air Group (NYSE:ALK), which operates Alaska Airlines and Horizon Air, was tenth at $1.09bn.

The remaining five of the top ten were Air France/KLM (No. 4, $2.17bn), Ryanair (No. 6, $1.74bn), Lufthansa Group (No. 7, $1.49bn) easyJet (No. 8, $1.47bn) and Qantas Airways (No. 9, $1.17bn).

For the report, the company analyzed financial data for 135 of the world’s airlines. A total of 67 carriers revealed financial information related to the amount of ancillary revenue they collected.

Some analyses have cited ancillary revenue as the single most important factor in returning the U.S. airline industry to profitability. And passengers certainly benefit from some facets of the à la carte pricing approach when they pay only for what they want or need. For example, they can choose to pay extra for “premium economy” seating with extra legroom, purchase food and beverages on the plane, check a bag, buy movies, log on to Wi-Fi, or not.

However, some carriers present certain fees separately to make their base fares appear lower than they actually are, while other à la carte fees and charges are driven by an airline’s desire to wrest more dollars out of its passengers. That category includes fees for things that have few, if any, viable options and that is where I believe limits are most needed.

While one could make the case that fees for checked bags and talking to a live agent help offset the cost of those services, many airlines charge fees for things that cost them absolutely, or very nearly, nothing. Early boarding is an excellent example. There is zero cost to the airline, so the fees are pure profit. Granted, that is an example of something that is truly optional; if a passenger has a confirmed seat and is at the gate on time, there is virtually no chance the plane will leave without them.

Reserved seating is another area that some airlines are exploiting and is another example of pure profit for the airline. The carrier’s reservation software has the functionality to select a seat and the passenger is doing the actual work so, when the carrier charges for reserving the seat (more than 24 hours in advance of the flight is a common standard), it is simply fattening its wallet. At least in those cases where it doesn’t cost them a sale.

Last year, I opted to take Lufthansa from Seattle (SEA) to Frankfurt (FRA), then on to Warsaw (WAW) instead of taking British Airways through London (LHR) because British would have charged me $45 each way to reserve aisle seats in the center section of the Boeing (NYSE:BA) 777 I would be riding between SEA and LHR, and an additional $23 each was between LHR and WAW. Had I wanted a seat in the rows nearer the window, the charge would have been even higher.

Equally unsupportable are fees for printing boarding passes. Spirit Airlines charges $2 to print the boarding pass at one of its airport kiosks or $10 if printed by an airport agent. Granted, that costs the airline more than if a passenger prints the boarding pass at home or uploads to their smartphone but there is no way the cost even approaches $10 to print a single boarding pass; it simply reflects the greediness of the airline.

Worst of all are fees that some airlines charge for things that have no viable alternative. Another example from Spirit: It charges for checked bags but also for carry-ons that exceed the allowed “one small personal item.” On Spirit, that personal item can be no larger than 12x14x16 inches, which is smaller than the standard carry-on size of 9x14x22 inches observed by most other U.S. airlines. After April 3, 2017, the size of Spirit’s personal item will get even smaller: 8x14x18 inches.

Baggage is a necessary part of traveling so a passenger either pays to keep their bag with them or pays for it to ride in the belly of the plane unless one can manage with a very small bag that meets Spirit’s stricter size criteria and is willing to buy and use an even smaller one next year.

Spirit also levies a “passenger usage charge” and Allegiant Air a “convenience fee” when a passenger books their tickets on-line. Spirit charges $35 per booking when using its reservation center, “[S]ince a live agent is more expensive than self-service online,” according to its website, though it also charges “$8.99 to $17.99 each way” for bookings created online or via reservations centers while Allegiant charges $14.99 per person per segment to use its call center.

The only no-cost option with either carrier is to go to the airport and purchase the ticket at the counter. The airlines are obviously betting that people will grouse about the fees but will pay them rather than spend the time, gas and aggravation of going to the airport to buy their tickets.

There are myriad other fees that vary by the airline. Allegiant charges a 3.2 percent fee for using a credit card to a maximum of  $8 each way, though it does not charge for using a “personal U.S.-issued VISA or MasterCard debit card.” Spirit includes an “Unintended Consequences of DOT Regulations Charge” of $2 each way “[T]o recover costs incurred due to Department of Transportation (DOT) Regulations.” Seriously? To recover costs incurred by complying with your industry’s regulations?

Although the à la carte pricing model may have created deeply discounted travel options, those fares lose some of their appeal when the fees and charges are tacked on. Last year, Wall Street Journal reporter Scott McCartney wrote an article that included a breakdown that showed how ancillary fees, along with standard government fees and taxes, inflated the “$209 fare” to a total cost of more than $484.

While not all airlines charge for every little thing, that appears to be the way the industry is headed, both here and abroad. According to the report, traditional brands including British and Air France are offering “basic economy fares to compete with the likes of easyJet and Ryanair.”

I believe the practice of à la carte pricing, while it has some benefits, is being taken too far and needs to be reined in. I would like to see the fees for booking online prohibited and strict limits placed on other fees including printing boarding passes and using a carrier’s reservation center.

Failing that, airlines should be required to disclose their fees clearly and specifically – and this is important – as part of the purchasing process and before the ticket is actually purchased.

That is not likely to happen, as our lawmakers continue to put special interests ahead of the interests of the traveling public. Earlier this year, for example, the U.S. Senate - wrongly, I believe  - killed an amendment to a bill that would have forced airlines to stop shrinking seat space, due in large measure to opposition from an airline trade organization.

But we can hope. And if we raise our voices loudly enough, perhaps we can even be heard.

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



Photo by Carl Dombek
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