This Good News Is No Big Deal
When it comes to the airline industry, passengers always have something to complain about. Now, as new federal rules aimed at tackling some of the least favorite parts of air travel take effect, the big question is whether they'll really make any big difference -- either to the flying public or to the airlines themselves.
The horrors of flying
In large part, the new rules aim to address some controversial delays over the past several years, including tarmac incidents with a JetBlue (NAS: JBLU) flight and a regional carrier operating under United Continental's (NYS: UAL) Continental Express name. Although domestic flights already fall under a rule requiring them to return passengers to the terminal if a delay lasts three hours or longer, the new rule includes international flights taking off or landing within the U.S., with a slightly longer four-hour rule.
Those problems have gotten the most negative publicity for airlines over the years. Certainly, JetBlue has worked hard to try to rid itself of the tarnish that the tarmac episode did to a formerly strong reputation.
Showing you the money
But the other rule changes are more likely to make a difference to the average passenger. The reason: they deal with everyday situations that flyers face all the time.
For instance, passengers have gotten used to having to pay baggage fees when they travel. In fact, for airlines including Delta (NYS: DAL) , AMR's (NYS: AMR) American, and US Airways (NYS: LCC) , baggage and other fee revenue has become an important part of their profits. Delta earned earned more than $950 million in baggage fees in 2010, according to the Bureau of Transportation Statistics. Among major airlines, Southwest (NYS: LUV) stands out for having chosen not to charge baggage fees, instead making it a key plank of its promotional advertising.
What may seem appalling is that before these new rules took effect, airlines didn't technically have to refund those baggage fees if they lost your baggage in transit. Rules already provided for compensation for the actual loss or damage to baggage. But with fees on baggage ranging from around $25 for ordinary bags to $200 or more for overweight, oversized, or other special items, getting that money back is more important than ever.
Getting the bump
In addition, the new rules provide an updated compensation schedule for those who get bumped off of full flights. The old rules paid passengers as much as twice the one-way fare for their flight or $800, whichever was less. With the new rules, that number rises to four times the fare for a one-way ticket, with the maximum amount rising to $1,300.
You're probably familiar with airlines offering compensation to travelers willing to give up their seats on an overbooked flight. Often, airlines save money by offering vouchers worth less than the statutory overbooking fee, counting on discount-seeking passengers who jump at the chance for money toward future flights. As a result, the number of truly bumped passengers is much smaller than you might think. JetBlue, for instance, reported only 12 such passengers in the first quarter of 2011.
So the overbooking rule may end up being almost invisible to travelers. In some cases, savvy flyers might be able to hold out for more money in a voucher situation. But with airfares on the rise and a tight economy, odds are good that more passengers will be willing to take less compensation to get free travel.
More pressure on the airlines
With fuel costs on the rise, huge capital commitments to buy new planes from Boeing (NYS: BA) and Airbus, and a slowing economy making recent fare hikes seem risky, airlines can't be excited about these new rules. For the most part, though, they won't likely have a huge impact on their finances. In fact, if they can soothe the ill will that baggage and other fees have generated among the public, the rules might actually help airlines in the long run.
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At the time this article was published Fool contributorDan Caplingerused to be first in line for those free vouchers, but having a family changes everything. You can follow him on Twitterhere.Motley Fool newsletter serviceshave recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policystays with you in the friendly skies.
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