A few weeks ago, American Airlines introduced a new fare structure and I recently had time to view AA’s fares and the structures on their website for travel between Portland, OR and Dallas, TX.

Airlines and particularly American Airlines, have tried to change how fares are priced before and generally with little success.  Other airlines are reluctant to engage in fare pricing structure changes that don’t give them parity or advantage against other airlines when it comes to bottom line price.

What American Airlines is doing is creating new fare structures that are based on bundled services they can sell individually.  These are not new fees, they are fare structures and it’s important to remember that.

I’m not a fan of the way fees have been introduced at most airlines over the past 5 years.  In some areas, I think the approach has been OK.  For instance, I think charging for food and alcohol in economy class was ultimately a wise move for two reasons:  First, food is one of those things that is taken whether it really is desired or not and that raises costs.  When you charge for it, you get only those who truly want it requesting it.  Second, by charging for the food, the airline can plan for a demand and not board too much food.  If you add more food to a flight than necessary, costs go up as a result of weight (yes, weight of that food does cost money in terms of fuel) and as a result of wastage.

I like charging for the advantage of boarding early.  It’s a fee that I’ve willingly paid on Southwest Airlines because I’m a tall, big man and having the advantage to get settled into a seat and make myself comfortable is worth money to me.

Charging for seat position is something I’m largely neutral on.  When the seat truly is an upgrade, I think charging for it is fine.  When you’re charging for exit aisle seats just because there is inherently a couple of inches of more legroom because it’s required, I don’t like it.

I do think that airlines need to address family needs with fees for boarding early and seat position.  I would suggest a reduced cost fee that covers families with 3 to 5 traveling.  When a family larger than 5 is traveling, they’ll often split up anyway.  3 to 5 allows two parents with a kid to get an optimum seating position for travel and as many as 2 parents and 3 kids can situate themselves optimally.

I hate baggage fees.  I think these are wrong on many levels and could be structured very differently with better results for all concerned.  First off, I think charging for any checked items is wrong.  Passengers are inherently traveling which means they must carry some luggage.  I think the first bag checked on any airline should be free.  I think that airlines should adhere to a strict policy of allowing a coat and one personal item to be carried onboard for free.  If you want to carry on additional luggage, it should be $30/bag.  If you want to check more than one bag, it should be $20 / bag.  Those who want the convenience and assurance of carrying on their luggage should pay considerably for it because it is a convenience.  Checked baggage isn’t a convenience, it’s a reality.

At first glance, I like what AA has done.  You can buy a base fare with no added services involved and conduct your travel just as you have been.  You can buy up and get a free checked bag, the ability to change your ticket without fee and priority boarding.  That’s a $68 increase in fare cost and is named Choice Essential.  Let’s break out the values of that:

• The checked baggage each way we know is worth $50 ($25 / bag each way).
• Group 1 priority boarding is probably worth about $10 if we use what Southwest charges for a similar opportunity.
• If the first two items have a value of $60 total, then the “insurance” against the need to change your ticket is worth about $8.00 and that strikes me as about right for such a thing.

So is it worth it?  I actually think it is.  This is a fare that I would likely pay for most of my trips.  I really think this adds value appropriately and it’s a bundle structure that other airlines should consider emulating.

There is an $88 fare upgrade (Called Choice Plus) that offers same day flight change and a free premium beverage in addition to the already named advantages.   This bundle has potential for business travelers but I think that the real value in this is the opportunity to do a same day flight change.  For today’s business traveler, I’m not sure this is much value, however.

Today’s airline road warrior generally is able to change their ticket for different travel anyway.  Even if they aren’t, the costs accrue to their companies rather than themselves and that means a traveler isn’t inclined to be worried about those fees in many cases.  Furthermore, that same road warrior typically carries their briefcase/purse and a rollaboard onto the airplane so they can bypass the baggage claim at their destination.  (Longtime readers will know that I think this is silly behavior but let’s not digress.)  In addition, many frequent fliers have arrangements that already permit them one or more free checked bags.   So when it comes to Choice Plus, here is what I think your real values are:

• Checked bag:  No real value (to most users)
• Ability to change ticket:  $8.00 (we’ve valued this above already)
• Group 1 priority boarding:  $10.00 (we’ve valued this above already)
• Free Premium Beverage:  $8.00 (this could vary but that price is fair at the least.)
• Same Day Flight Change:  $62.00 ($88 minus the above values of $26 equals $62)

I’m not feeling this “choice” as a big value.  Some business travelers might find it a value to be able to change their tickets and that value might go up depending on how AA treats its frequent fliers at various status levels going forward.

Bottom Line:  Choice Essentials feels like a pretty good bundle for both the business and casual traveler.  I like it on many levels.

I would like to see more bundling and I think fare bundling can work really well if airlines get their IT systems together to handle this.  It’s a good first start but I do think there are other opportunities out there to create more value bundles that work for more people.

Filed under: Airline Fees by ajax