Think there’s a pattern here? This past spring, travelers found out that airlines were jacking up fares and adding fees. Then, in early summer, a report came out indicating that even as fuel prices were dropping, airfares would continue to rise and planes would be fuller than they have been in years. All of this news, by the way, comes a year after travelers were grumbling about (yep) the historic onslaught of airline fees. Guess what the latest news is now?
First off, earlier this week we learned just how much we’ve been paying in airline fees: a whopping $22.6 billion last year. The Wisconsin-based consulting firm IdeaWorks reported that in 2011 airlines worldwide collected $22.6 billion in “ancillary fees,” a category that includes baggage fees, charges for on-board food, beverages, and entertainment, boarding fees, and basically anything else over and above the cost of the flight. That’s up slightly from the 2010 figure ($21.5 billion), but a substantial rise compared to 2009’s ancillary fees total ($13.2 billion)
Previously, IdeaWorks has highlighted the industry-leading fee-heavy model of Spirit Airlines, which managed to collect an average of $103 in fees per passenger round trip in early 2012. In the first quarter of 2012, 40% of Spirit’s revenues came from such fees, rather than the actual cost of flights. Those figures, mind you, were released before Spirit hiked several fees, including raising one carry-on baggage fee from $45 to $100.
For better or worse—mostly worse, from the perspective of many travelers—Spirit is proving to be a trendsetter. The airline has been described as being the most profitable in the industry. Delta, for one, seems to be following in its footsteps. The carrier, which already collects the most passenger fees overall, recently announced its intentions of reaping in an extra $1 billion in fees annually.
In light of the fee-for-all, the New York Times’ Joe Sharkey writes that airlines are no longer “just in the transportation business.” Instead, airline revenue increasingly “comes from a large and growing array of services and products as airlines devise ever more strategies to become ‘more active retailers of travel,’ according to Jay Sorensen, the president of IdeaWorksCompany.”
The rise in fees is just one part of the story. Costs are also rising for airline passengers in the more traditional fashion—rising fares.
Last week, United Airlines hiked its fares, and according to USA Today, competing airlines followed in its footsteps. The result is pricier flights across-the-board in the U.S.—three short months after the last time the airlines inched airfares upward. The latest increase is reportedly the fourth time this year that fares have risen; in 2011, there were nine separate fare increases.
Since April 2011, fuel surcharges by U.S. airlines have risen 53%, while fuel prices have increased 24%, according to the study.
Often, airlines lock in the price they pay for fuel well in advance. This is a cost-saving move if and when gas prices rise steeply. Then again, with this model, the airlines don’t benefit with cheaper fuel when prices in the marketplace drop.
The current model for air travel, which relies so heavily on fees and surcharges, is obviously confusing for passengers. The customer pays one price upfront, but almost always winds up paying more down the line. How much more? That depends on many factors, including which airline you’re flying, how you’ve packed, whether or not you’re thirsty on board the flight, and more.
In a speech delivered at the Global Business Travel Association convention, Michael W. McCormick, the group’s executive director, said, “It is imperative that there is full transparency to buyers on fares and fees. This also applies to booking, ticketing, billing, and fulfilling those services.”
It appears as if the airlines are too in love with a web of fees to change much, however. Fees and surcharges, after all, are more lucrative than mere fare increases. Airlines must pay a certain percentage in federal taxes based on airfares, usually 7.5%. But fees? They’re not subject to the tax, so fees are far more profitable.