Airlines tack on fees to cover fuel costs - East Valley Tribune: Business

Airlines tack on fees to cover fuel costs

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Posted: Saturday, May 31, 2008 5:47 pm | Updated: 9:32 pm, Fri Oct 7, 2011.

U.S. airlines are adding fees for everything from a few inches of legroom to a mini bag of pretzels in hopes of paying their spiraling jet fuel bills. And the bottom line is still bleeding.

What's next? Charging passengers by the pound?

At least one industry expert thinks that's inevitable.

Click to view some of the service fees

Airlines spend a fortune to shave 5 pounds off the weight of a seat, then charge the same price for a 50-pound kid or a 250-pound man to sit in it, said airline consultant Bob Mann, of R.W. Mann & Co.

"It's shocking they spend so much to micromanage (costs), then they give it all away," Mann said. "It's inevitable that someday we'll be charged by our weight. The idea is distasteful, but we'll be doing it in three or four years, or the industry will look very different than it does now."

His vision of a no-action future includes fewer airlines, significantly higher fares and significantly less service.

Mann said jet fuel is the biggest line-item expense for a flight, and the weight of the plane and what's inside it has a direct relationship to the amount of fuel used. That's why air cargo pricing is keyed on weight and size. Recently bumped-up prices for luggage, and especially overweight bags, helps compensate, he said, but the passengers provide the bulk of the interior weight.

Fuel prices won't go down, and charging a few bucks for a bag of potato chips or $10 for a clump of spaghetti and a minuscule salad won't raise enough revenue to compensate for the soaring price of crude oil, he said.

Mann said that he pitched fuel hedging - that is, locking in prices for future purchases - in 1993, after oil prices rose during the Gulf War. Everybody scoffed, he said, and one airline executive told him it was "the dumbest idea he ever heard."

"Three or four years later everyone was doing it," Mann said. "They still don't do it very well, except Southwest (Airlines)."

He thinks airlines will have to adopt a new model for ticket pricing once they have charged fees for every item or service on board and find they still can't pay the fuel bills.

They are almost there now.

Allegiant Air, which flies from Phoenix-Mesa Gateway Airport, charges a fee for everything from a pillow to a soda pop.

Nearly every major airline has recently started charging for a second or third piece of luggage. American Airlines just announced plans to charge for the first bag. Look for others to follow suit.

United Airlines is "seriously studying it," said airline spokesman Jeff Kovick.

Tempe-based US Airways is too, said spokeswoman Valerie Wunder.

"You have to look at all the possibilities with oil at $130 a barrel," Wunder said. "It's giving people an option to pay only for the things they use."

Nearly all airlines have boosted fees for overweight bags during the last few months, and for such services as actually speaking to a person to make a reservation or change a booked flight.

The big exception to almost all the new or boosted fees is Southwest Airlines.

"We are not looking to fee people to death," said spokeswoman Whitney Eichinger.

The Texas-based airline, which has a hub at Phoenix Sky Harbor International Airport, has about 70 percent of its fuel hedged, she said. So Southwest can be profitable without charging for once-free services.

"Our fuel costs are low so we've been able to keep costs down without taking things away," Eichinger said. But the airline is adding new features and will charge for them to boost revenue. Those include selling energy drinks, adding Wi-Fi and packaging hotels and other tourism amenities, she said.

Southwest, which does not assign seats, recently added a preferred seating option, allowing people to board first for a fee so they can select the best seats.

Other airlines have added preferred seating for a fee. No-frills Allegiant has been doing it for a long time.

So why don't airlines just raise their prices instead of tacking on fees?

They have, actually, adding fuel surcharges into ticket prices.

But if an airline raises a ticket price and the competition doesn't immediately follow, it has to back down, said David Stemplar, president of the Air Travelers Association, a passenger advocacy organization.

"Computer reservation systems search for the lowest fares, and nobody wants to be the airline with the highest fare," Stemplar said.

Wunder said with online booking services such as Orbitz or Travelocity, passengers still opt for what appears to be the cheapest flight.

"Decisions can be swayed by a $5 price difference," she said.

Some passengers have complained about the avalanche of fees, but many would prefer to pay for only the services they use, said Stemplar, who hears the complaints either way.

"But the one thing worse than high fares is no fares, because there is no service," Stemplar said he tells the complainers. "There are very few business models in the airline industry that work even with $125 a barrel oil. Some passengers do understand this."

Stemplar is expecting escalating fees and surcharges to continue.

"We don't think they'll ever charge to use the lavatory or air-sickness bag, but everything else is fair game," he said.

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