A losing fight? Airlines earned $10 billion from fees last year, up 345 percent

ishot-2My friend Addison Schonland said it best: Anyone who thinks baggage fees are going away is living on another planet. And as if to underscore that point, IdeaWorks has released a survey that shows ancillary revenue is up 345 percent from 2006, to an eye-popping $10 billion last year.

Is this a losing fight for airline passengers?

I’ll get to the answer in a second. But first, let’s have a look at these incredible numbers.

The most impressive one is ancillary revenue as a percentage of total revenue. In other words, what portion of an airline’s revenue comes from fees? It suggest US-based Allegiant, not Ryanair, is the fee leader.

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Allegiant is a strange company. On one hand, it hits customers with onerous “convenience” fees for paying by credit card, but on the other hand, it allows passengers to change the name on a ticket, which no other major American airline permits. Of course, it charges a fee for a name change.

Here’s IdeaWorks’ spin on ancillary revenues:

Ancillary revenue and the magic elixir of baggage fees did not singlehandedly save the US airline industry. But it’s easy to imagine the number of airline executives who silently murmured words of thanks for the millions of dollars it delivered to bottom lines during 2008. At the same time, low cost carriers around the world have been making continuous enhancements and are generating higher levels of ancillary revenue.

If you’re interested in 2009 data, check out this Bureau of Transportation Statistics page, where you can find luggage fees and change fees by airline. (Hint: it’s getting worse.)

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It’s clear that the big legacy carriers — American, United, Delta — have embraced a la carte fees.

They claim their customers, have, too. They’re wrong about that.

Fact is, this has happened so fast, we’re confused more than anything else. We’re not quite sure how we were quoted $150 for a flight but ended up paying $230.

Can we fight these fees? No — and yes.

What airlines have done is really clever. They’ve “unbundled” their fares, removing the “convenience” of booking by credit card, the ability to make a reservation, to check a bag, to order a drink, and spun it as a pro-customer activity. “We’re just giving customers what they want — low fares!” they say.

Sadly, some of the more gullible passengers have bought it.

The truth is a little more complicated. Airlines took the fares and, without lowering them, unbundled.

Think of this in hotel terms. A property offers a $100 a night rate. One day, it adds a mandatory $20 “resort fee” but it keeps its rate at $100 a night. How much does one night at the hotel cost? If you said $120 a night, you’re right.

Airlines want you to think the rate is still $100.

Here’s where all of this is headed: If this is allowed to continue, airlines can continue offering cut-rate fares to the point where ticket prices fall to zero. Then they add taxes, fees, add-ons and a la carte charges until they’ve made enough to stay in business.

This is absolutely wrong, and what’s even more outrageous is that the government is letting the airlines do this. The Transportation Department has done virtually nothing to protect passengers against these lies. It could if it wanted to. In fact, a simple rulemaking by the DOT could throw a wrench in this foolish a la carte scheme.

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If the government mandated that advertised fares include the ability to check a bag, to make a reservation and pay for the ticket with your credit card, it would take the wind out of the a la carte movement’s sails.

By forcing airlines to display what every airline passenger considers to be part of a reasonable airline ticket, and then allowing us to “opt out” of items like a first checked bag, the government will ensure the public isn’t deceived when they go fare shopping.

The technology exists to create these fair fare displays.

Who doesn’t want fares rendered like this? Airlines don’t want it, because they are profiting from their deception. A few airline apologists oppose it, too — either for ideological reasons (“We don’t want the government getting involved”) or because they believe the airline spin about just giving us what we want.

The most common counter-argument I hear is that no other business is forced to display a full price. But that’s wrong.

Let’s take a loaf of bread as an example. When I buy a baguette at the store, it costs 99 cents, with a 7 percent sales tax.

If an airline were selling it, the loaf would cost 49 cents. But they would add a packaging fee, a stocking fee, and a convenience fee for paying by credit card. Ridiculous? Absolutely.

A la carte fees are not a losing fight for passengers. It’s all about disclosure. If airlines are forced to reveal these onerous new charges up front, then the next IdeaWorks study will show fees that are more reasonable — and airline passengers that are considerably happier.

Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at chris@elliott.org. Read more of Christopher's articles here.

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