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Airline fee orgy has nothing to do with fuel prices

June 13, 2008

Bob Crandall is right. The latest airline crisis, which has unleashed an avalanche of new fees and surcharges on passengers, has nothing to do with high fuel prices. It’s about bad management.

But we don’t need American Airlines’ former chief executive to tell us that. We just need to wait a while.

When fuel prices come back down — as they are almost certain to — just pay close attention to all the new extras that have sprung up in the last few months.

The $15 fee for the first checked bag. The $2 per soft drink charge. The surcharges for redeeming our “free” award tickets.

Does anyone think airlines will back off when times are better?

Of course not. Airlines have been waiting for an excuse to charge us for anything that isn’t bolted down on the plane. They’ve been looking at Ryanair for years, envious of its ability to charge passengers for everything.

No, none of these fees are going to go away.

So are the airlines lying to us? Yes and no.

Sure, fuel costs more. No doubt, it’s far more difficult to make a buck in the airline business than it was just six months ago because of sky-high oil prices. But that’s not the whole story.

Airlines have always wanted to add these fees, and in that sense, the higher fuel costs are nothing more than a smokescreen. They are not giving us what we want, as United Airlines disingenuously claimed when it announced its new surcharges yesterday.

They are giving us what they want.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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28 comments

  • http://www.marilynsholin.com/blog Marilyn Sholin

    This is certainly no surprise. They have been wanting to hit us hard with all this for a long time and it’s never going away. I already know of smaller businesses that have totally cancelled future travel that was planned. Now that will cause another domino effect….higher fuel, higher airlines prices, less travelers is going to equal what? Less revenue and then higher prices again to make up for more losses.
    Where will this end? And yes, we have also cut back on some of our business travel that is out of our pocket and not reimbursed. And we had to raise our prices to cover the trips we do need to make. A never ending problem.

  • Mel

    “has nothing to do with high fuel prices” – I can’t begin to understand the thinking involved in coming to this conclusion. Then later you state that “Sure, this is about higher fuel costs.”….which is it?

    Of course airlines want to charge the passengers who actually use extra services rather than all customers. They have been avoiding it for years due to hysterical outcry like this.

    If fuel prices come down these fees will not drop because the airlines will have to have base ticket prices far higher than they are now to offset the fuel costs. They are all in trouble and increased fees are here to stay, even though they only make a tiny dent in the current disastrous bottom line.

  • Jasper

    The difference between Ryanair and the American airlines it that even though Ryanair charges for anything that’s not bolted to the plane, they barely charge anything for a ticket. Their business model is *very* different from that of the American airlines. I mean, have you seen any $0.99 tickets in the US yet?

  • Dave

    They are going to these extra fees because they don’t show up in the airfare search engines, deceptively making their price look better. Let’s encourage all search engines to include baggage charges in the bottom line, like the good ones include taxes, so we can compare fares fairly. I’ve emailed the one I use, Kayak . . .

  • Mike

    This reminds me of the politicians who say they aren’t going to raise taxes. Then they raise fees on things like state parks, garbage collection, documents, DMV, etc. it’s all the same – more revenue – but many people seem to think it is better to have new or higher fees than to raise taxes or base prices.

  • http://www.billgeist.typepad.com Bill Geist

    Bad Management is nothing new. Let’s not forget the airlines’ shameful shedding of tens of thousands of employees in the week after 9/11. It wasn’t about 9/11…it was an excuse to do what they needed to do.

    On the other hand, Southwest didn’t lay a single person off…and was the only airline to post a profit that quarter.

    Bad Management indeed.

  • Eric Rosenberg

    What I don’t understand is why an airline hasn’t popped up to take advantage of this awful level of customer service and ridiculous fees across the industry. Many people are now savvy enough to know that ticket prices on websites aren’t the true cost anymore, especially once fees, taxes, surchages, etc. are added.

    I’m surprised some brilliant CEO-type hasn’t figured out that a new airline that doesn’t charge fees, has exemplary customer service like in the good ol’ days, and is up front about their prices, would probably take off (pun intended) and be quite successful. At this point, if I’m going to have to pay over $1,000 each time I fly from LAX to Boston, then I’d like service that justifies that cost. Give me an airline that says, “We have to charge a bit more than other airlines, but the service you’ll get will be impeccable – and we don’t have a coach section on this plane because we believe EVERY passenger is first class!”

    Now I’m not suggesting that international first class-type service be offered to everyone, but at least something resembling the service I received back in the “golden years” of flying TWA! Smiling attendants who exist to make my flight comfortable; lots of leg room, no matter which seat I’m in; free non-alcoholic beverages; free luggage check-in; a fast, friendly, proprietary security line (so I don’t have to intermingle with the disgruntled people flying the other airlines); and perhaps even some service at the gate (sort of like on cruise ships where someone could come around and offer to sell you beverages, snacks, and magazines while you wait for boarding to begin.)

    I firmly believe that the problem isn’t the ticket prices, but the service. Why can’t airlines just raise their ticket prices $15-$30 and then NOT charge a luggage fee? They’d probably make more money that way anyway! If airlines still provided the level of customer service that we encounter on most cruise ships, hotels, and B&Bs, the public wouldn’t be as up-in-arms as we are! Why don’t they realize that?

    Yes, higher prices mean that some people won’t be able to afford to fly. I’ve also had to cut back for business due to the costs, so it’s an inconvenience. But I’d rather take fewer and more expensive flights with excellent customer service than more frequent flights that leave me furious by the time I finally get off the plane and escape!

    In this current climate, an airline with a reputation for exemplary customer service wouldn’t have to compete on price like they all do now. It’s become so bad that we search for flights based only on price because “they all suck!” If I KNEW that flying on United meant being treated like a VIP even in coach, I wouldn’t even bother to look elsewhere at this point.

  • Jasper

    @ Eric R: There is only one answer to your question: The airline industry is not a free market.

    But hey, try and tell that to the free-market folks. They like their oligopoly-with-hub-logic and prices-gotta-be-variable-every-single-minute-of-the-day over a simpler pricing model that just prices based on cost and profit margin.

    I mean, economically, something is very wrong with an industry if everybody is losing money, but nobody is able to raise prices.

  • Ned Mills

    I wouldn’t be surprised if the next thing the airlines do is to install pay toilets on the plane!

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  • Steven

    It’s been reported a few times in various articles that airline companies put out long term contracts on their jet fuel the in the end they eventually pay less for a gallon of jet fuel then what a gallon of gasoline costs us.

  • terric

    @Jasper

    There are some carriers in the US that have $0.99 flights at times – check out Spirit Airlines. They don’t fly to a large amount of places but my family consistently gets great deals where three people can fly for $160 total including all fees.

  • Chicky

    Anyone see the MAD TV skit about airlines? The FA is giving the usual “please keep your safety belts fastened” spiel, and everyone looks around them. No seat belts. Her next line: “Seat belts may be purchased for $5 from your nearest flight attendant.” Art imitating life. I’m just waiting for the $5 “safety belt maintenance fee.” They probably can’t make passengers buy safety belts, but I can see the airlines trying to make us pay to “maintain” them.

    I’m surprised they haven’t gone to pay toilets already. Sounds like a windfall to me: a captive audience with no place to go.

    When costs rise, I expect to see prices rise. However, considering the bad behavior of our legacy carriers BEFORE oil shot up and prices were still $1.25 a gallon (not that long ago), I can’t cough up much of a sympathy hairball for them.

  • http://msn Cliff Woodrick

    Has anyone viewed the new Southwest Airlines ad that has two columns – one for Southwest and one other. It shows all the Add Ons with the various prices with Southwest indicating ZERO. This is very effective and I will be switching to honest airlines in the future.

    I wrote American and found out that I am still entitled to two bags at NO charge because I purchased my tickets my tickets seven months ago. This applies to my flight at Christmas to Aruba. Yes I made several copies of the response for the counter person.

    Have a wonderful day

  • John

    Sure this is all to cover-up poor management. But, usually these guys are smart enough to cloak it in PR smoothness. When did the airlines hire so many PR stupid executives? For the first time in recent history they have a situation that the public would completely understand – “hey, we’re all paying more at the pump” – and they blow it. If John Kerry ever hired morons like this to run his campaign he never would have been elected President. Oh, wait a minute…

  • BeFair

    Airlines are not asking for your sympathy. They are raising prices to cover their costs. Whether it’s bad management, or gas prices, their costs are up, so yours are too.
    The prices ARE stated upfront, and for that matter, documented by most major newspapers. The reason some “CEO type” hasn’t come up with a business model for an airline that doesn’t “charge fees”, and has “exemplary customer service”, is because such an airline would be out of business within a year! Like you said, these were the, “good ole days”. We LIVE in a different world.

  • http://www.myitchytravelfeet.com Donna Hull

    Raising prices due to increased fuel costs is one thing. Raising prices because an airline is poorly managed is another. I’m the client and I shouldn’t be punished for an executive’s poor performance. Isn’t that the real issue here?

    I do not see how charging for drinks and snacks is going to help an airline’s profit margin. It’s small potatoes compared to other costs. Yes, fuel prices are rising but what about the high cost of executive salaries and benefit pacakges? Change needs to start at the top, not at the bottom with the passengers.

    Airline execs, take a 10% decrease in your salaries and stock benefits due to “lack of performance.” Stop expecting the consumer to pay for your ineffective managment.

  • Dale

    It would appear that the next logical progression would be to have us weigh in before boarding. Since passengers are now nothing more than breathing freight, the airlines will start to use UPS or FedEx pricing models.

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  • pilot

    I work under a US legacy carrier. Chances are they will be out of business in the next 12 months should fuel stay this high. Oil needs to go down below $100/bbl for any of the legacies to have a hope of making a profit.

    It’s funny, people will balk at paying fees for airlines but yet my cell phone bill has over 30% in tacked on “fees”. I honestly think the airlines would love to provide free bags, food, soft drinks, etc. but the honest to God truth is they are losing their shirts in this environment.

    To the guy that mentioned the airline model with “good customer service and no fees”, you are completely wrong. When the buck stops the airlines that have done what you suggest have gone out of business. One of the last ones is Midwest, they just asked their unions for a 50% paycut. They also foresee ceasing operations in the near future should they not raise any capital. Frontier, also a company with great customer service, has filed for Chapter 11 and most likely won’t make it through the winter. Actually, if this environment continues, there may be 1 or 2 network carriers left (my guess is American and Delta) followed by 3 or 4 LCC’s (SWA, Airtran, jetBlue), and that will be it. Air travel will become expensive and flying your family to Disney World will become a thing of the past. On the plus side delays will probably go down significantly.

  • Sebastian O

    I find it very hard to believe that the surcharges are due to rising fuel costs. The following will be used as my example.

    To fly from New York to Miami Florida and to bring two bags under the new pricing scheme I will have to pay an additional $25-35 for the 1,000 mile trip.

    If I fly to Shanghai, China (a distance of close to 12,000 miles) on the same airline they don’t charge a baggage surcharge.

    With fuel costing around $4.00 per gallon, and jet fuel costing more than that we assume that I’m being charged for around 6 gallons of fuel for my two bags on my flight to Florida. That would mean it would require around 72 gallons of fuel to get my bags to China. This would require a fuel surcharge of around $150-$200 for international flights from New York to Asia.

    However the airlines are aware that if they told every person flying to Asia to spend another couple of hundred dollars for their bags that they would have no customers at all. Everyone would fly Cathay Pacific, Korean Airlines, China Eastern Airlines, Singapore Airlines and every other company that is not owned my an American company.

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  • Barbara

    If the airlines want to charge us fees for all these things, then I agree they should provide better customer service to go along with that. If I pay $15+ to check my bag, then they need to work on getting the bags where they need to go, or refund my fee(s). I recently traveled in first class on AA from MIA to SFO with a frequent flyer award. The audio was not working at my seat and the cabin was full. Shouldn’t I get some sort of refund for that? I didn’t even write a complaint letter when I returned, because I felt it wasn’t worth the effort. If I had been on a full fare ticket I probably would have. If the economy improves they won’t be dropping these fees anytime soon. To Sebastian O, your estimate for fuel needed to Asia is right on target. Most airlines charge around $200 fuel surcharge for intl flights to Asia or wherever, including Cathay, Korean etc.

  • Trent880

    “Airline fee orgy has nothing to do with fuel prices”?

    Based on what? You’ve provided zero evidence that is the case. And this?

    “No, none of these fees are going to go away.”

    Do airlines no longer compete with each other? The instant fuel goes down and one carrier lowers fares/drops fees/surcharges etc., others will match. And if they don’t, they’ll likely see their traffic vote with their feet. Are you new to this industry?

  • GIvemeabreak!

    @Trent880

    You obviously have no understanding of how the airlines work. Fuel is more expensive, but there are a number of reasons why most airlines are not able to make a profit. First, they all run a highly inefficient system based on hubs and spokes and service communities that they have no business (in the business sense) serving. You can’t have 100% airport coverage and be profitable; it doesn’t work that way. Look at Southwest — they don’t serve a large amount of airports because they limit themselves to profitable routes that they know they will be able to fill seats. An American Airlines turboprop to Bottom Hole, Idaho is just not going to be profitable. These fees are not going to go away because they will never give up a new revenue stream. Give me a break! Are YOU new to this industry?

  • Bill

    I agree that the new fees have less to do with fuel prices than many people realize. A couple years ago fuel used to be like 20% of an airline’s cost. Now its about 40%. Do the math, that equates to about a 20% increase in ticket prices. In reality its less than that due to hedging. Ticket prices and fees are up more than that in the last year.

    The airlines are free to charge whatever they want but the public is also free to not fly them and the airlines are certainly free to go out of business. However there’s nothing wrong with questioning stupid business practices put into place by overpaid execs. For instance, I’ve always questioned the whole penalty model they have set up for baggage. Maybe someone who works for an airline can tell me this, but is a typical baggage compartment packed to the gills? I’ve never had luggage rejected or put on a later flight on account of the plane being too full, so I have to believe space is usually available. Thus when you bring in some oversized and overweight suitcase in addition to your free checked bag, the only cost for the airline is the fuel to carry the bag, the cost of the handlers to load it up, and the time spent waiting at the gate as they load up that one large bag (I’ve never waited at the gate on account of baggage though). The fee for such a bag is now hundreds of dollars. Does anybody believe it costs anything close to that to transport that particular bag? Heck, it costs more than the ticket itself. If they were to price extra luggage reasonably, then more people would check it, the airline would fill the cargo hold with paying bags, and they’d probably make more money that way.

    The other thing I don’t like about all these dumb fees is from the standpoint of a business traveler, they are just one more little thing to keep track of for my expense report. That and they make it more difficult to comparison shop airlines, which I guess is what they want, but frequent fliers will see past that.

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  • Brian

    As of February 2009, oil prices have dropped substantially since July. Christopher Elliott is correct that the airlines continue to stick to these fees when fuel prices dropped. Now, the airlines claim that the economic crisis is what’s fueling their need to add this surcharge. I think once the economic crisis passes, the airlines will now say that the fees are needed to get the airline profitable once more, and then make a new excuse when the airline is raking in hundreds of millions (surcharges offer more value to the customer). I hope those executives get shown the door, when the Board has heard enough lies, and find themselves in coach and dealing with the horrendous fees that they helped to implement.

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