Are Airline Surcharges on the Way Out?

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What seemed like a smart way for airlines to stay afloat during these tough economic times—charging extra fees—appears to have backfired in a big way.

In the past year, airlines have started collecting money for everything from checked bags to "extra legroom." Recently, some have even presented travelers with a surcharge for holiday travel. But are these fees really the right stimulant for a failing industry, or just a quick fix? Some experts believe the industry's preoccupation with tacking on fees is having detrimental effects, but airline executives are saying they won't be kicking the habit anytime soon.

An April 23, 2009 report on the blog Joe Sent Me, business travel writer Joe Brancatelli noticed "airlines that added bag fees most quickly and on the most bags last year are exactly the ones that had the largest year-over-year revenue fall in this year's first quarter." Case in point: United Airlines became the first major carrier to charge a $25 fee for a checked bag. Subsequently, the airline saw a 21 percent decrease in revenue, the largest drop in the industry.

Several other airlines—Continental, Delta, and American—were quick to jump on the checked-bag-fee bandwagon, matching or surpassing United's fee. Fast forward a few months and notice that each carrier saw a 15-19 percent decline in revenue. As Brancatelli put it, "the faster they added fees, the more their revenue fell."

Travelers irritated with extra charges seem to stay loyal to airlines that steer clear of add-on fees. JetBlue and Southwest-the only major airlines that do not charge for the first checked bag-saw much smaller drops in revenue, 2.9 and 6.8 percent respectively.

According to the "Ultimate Guide to Airline Fees" compiled by Smarter Traveler, Southwest is also the only airline that does not charge booking fees or ticket changes. In a report released October 12, the Dallas Morning News asked Southwest executive vice president Bob Jordan to comment on the $300-400 million dollars they could be bagging per year with add-on fees, Jordan replied "that doesn't take into account what business may be shifting Southwest's way because folks are beginning to get irritated with fees."

The fees that other airlines charge add up quickly, oftentimes increasing ticket prices by astronomic proportions. The Houston Chronicle reported on September 29 that surcharges can "push the total ticket price up by $25 or $60"-which actually seems like an understatement.

According to the Bureau of Transportation Statistics , US carriers collected $699.6 million in baggage fees in the second quarter of 2009 alone. Over half of the major carriers now charge for in-flight beverages, and several sneak in fees for headphone use, "sleep sets," and even water.

So might the airlines have a better chance of improving sales and revenue if they cut the fees? The answer would appear to be yes, but don't expect those extra charges to go away anytime soon-according to some executives, airlines have been giving away freebies for way too long.

US Airways CEO Doug Parker summed up the industry attitude in an article in The Arizona Republic in October 2008 when he said that there was "no way" the barrage of fees would stop.

Maybe the airlines will change their tune as their revenue continues to decrease by large margins compared to their fee-free counterparts.

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