What is an airline selling these days?  Food?  Baggage transportation? In flight entertainment?  Mood lighting?  Opportunities to upgrade to business class?

It’s kind of hard to tell these days what an airline is selling with the dilution that has occured as a result of de-bundling services.  The truth is, airlines are more frequently in the news for some subsidiary service they’ve de-bundled than they are for their primary service product.

The primary service product is transporting passengers reliably between point A and point B and if you don’t do that, no manner of any fees is going to make you profitable.  It won’t matter how many channels of TV you have if the customer can’t get where he/she is going on time frequently enough to build trust, you aren’t going to make a profit.

Think I’m wrong?  Ask yourself why Southwest succeeds with a very basic service product even compared to many other LCC airlines. 

It’s about the customer getting where they want to go when they wanted to get there, stupid.

Filed under: Airline Fees, Airline Service by ajax
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Over the past 3 years, we’ve seen a proliferation of WiFi on airlines throughout the United States.  Some airlines such as Virgin America, Delta and Airtran have already installed it fleet wide and some are already working on fleetwide installations (Southwest).  Others have installed it on a smaller sub-set of their fleets such as American Airlines, United Airlines and US Airways.

I like it.  I’ve used it and even a few years later, I kind of marvel that I live in an age where we can have internet access on an aircraft for what is a pretty small fee.  Remember the age of $3.00/min phone calls on airliners?

The question is, is it a viable revenue stream for airlines?  It’s difficult to find out the “take” of revenue per flight but the percentages bandied about range from 5% to 10% so far and that is even on airlines who are offering it fleetwide.  It costs about $100,000 to install the Aircell GoGo Inflight system on an aircraft.  Reportedly even more for the Row44 kit that Southwest is deploying.

Remember when internet access began to pop up at hotels?  The fees were, at times, almost outrageous at $30 / day and it was only found at the more “elite” hotels.  Over time, that changed and now it’s more uncommon to find no internet access at your basic Motel 6.  It’s prolific and, in most cases, free.

I think that is what is going to happen with airlines in the United States.  I think we’ll one day see this service free or available for a fee so cheap ($1 to $2 per flight) that it will seem free.  And that is why I think airlines such as American, United and US Airways remain somewhat hesitant to go with a fleetwide installation. 

I believe they’ve seen the future and the future presents a kit of equipment on the aircraft that adds weight and generates, at most, $100 per flight.  That isn’t a self sustaining model and it implies that airlines will one day have to sustain it with air fares.  The very thing they’re working hard at de-bundling services from.

I do not think that WiFi is going away one day soon.  To the contrary, this is just the kind of added value service a LCC can offer and competitively distinguish itself from legacy airlines. 

The only kind of flights that I think WiFi has revenue potential on are long haul, overseas flights.  Particularly those flights between the US east coast and Europe.  Flights full of business people who work on those flights which are short enough to fly frequently but long enough to eat and also get something done as well as capture a nap.

Given the cost to install and maintain these systems, I cannot ultimately see airlines keeping this system in place to generate revenue that adds to profit.  At most, the fees will pay for the initial installations and, perhaps, maintenance over time but this isn’t the holy grail for profits.

Filed under: Airline Fees, Airline Service by ajax
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Shortly after most airlines begin charging to check a bag on flights, the debate began on whether or not the airlines had an obligation to deliver that bag to the destination reliably and, failing to do that, refund the charge.

It’s a question I asked myself as soon as American Airlines began those charges since they used to be well known for bag delays from Chicago to Dallas. So well known that if you’re bag didn’t show up on your flight and you were a regular, you just waited for the flight that arrived an hour to two hours later. It never came on the very next flight, it usually came on the flight after that and sometimes the flight after that. I became so used to it, I simply sighed, went to a bar and waited without even registering a complaint to the AA baggage clerks because I inevitably found that I knew when it was coming more accurately than they did.

I firmly believe that when you charge for this service, you have obligation to deliver the service reliably or, failing that, an obligation to refund the baggage charge. In dollars, not flight credit. And immediately, not weeks later.

Airlines say that if the DoT requires them to do this, costs will rise and everyone will pay more for their flights. Yes, they said costs.

Costs won’t rise but the revenue from those fees might, perhaps, be reduced and doesn’t it say something when airlines panic over this? The airline industry is a weird one. They’ll cavalierly hand out freebies to people who fly frequently and, yet, charge huge fees and abuse customers left and right who are anything less than a frequent flier. They’ll cling to the fees and fares they’ve charged until their body is cold and dead. And many consumers accept this without even much objection.

Let me ask you this: Would you order a new washer and drier, permit yourself to be charged months in advance for a delivery that is delayed and when the items do arrive you find them damaged or one missing and not complain? What we wouldn’t put up with from just about any other service or product provider we regularly put up with from the airlines. Why?

I would love to see someone reading this argue the airline case and not from the point of view of “fares are cheap, quit expecting so much.” It isn’t expecting much to see your luggage travel on the same aircraft to the same destination you are going to.

Filed under: Airline Fees by ajax
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The US Travel Association claims that airlines’ checked bag fees are making it more difficult to pass through security at airports and are calling upon airlines to reduce or eliminate them to improve this situation.

Do they add to security line time?  I suspect that those fees added an incremental amount of time to waiting in lines but I don’t think it’s a prime driver of security wait times.  The truth is, the business traveler has been running around with briefcases, purses and rollaboards for years and the business traveler comprises the major part of those passing through security most of the time. 

Furthermore, no airline is going to do this to alleviate security wait times.  If anything, they’ll (rightly) point out that security wait times are the problem of the government.  Given the taxes and fees that are levied on travel already, I would agree that it isn’t the airline’s problem. 

Security wait times are much more likely being driven by how those lines are designed, changed and/or increased security procedures and old airport infrastructure.  I honestly look forward to the day we see a modern airport designed to accomodate security in the 21st century as I think that could be managed much better with design. 

Another contributor to security wait time is the staff itself.  Anyone who has traveled can tell you that some airports have fairly effective and efficient staff while others have very ineffective and inefficient staff.  Again, that’s the government’s domain and problem. 

Are people carrying more onboard aircraft?  Absolutely.  But changes in baggage fees didn’t drive 100% more carry on baggage.  It was a much more incremental amount and I would make an off the cuff guess that it probably drove about 20% more carry on baggage at most.  Remember that most business travelers already can avail themselves of free baggage check-in as a function of their membership in frequent flier programs.  They simply choose not to.

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Before you shop for a fare to travel this spring or summer, remember one thing:  You will almost certainly pay more than last year.  And, not for nothing, you probably should.  Gasoline prices are way up ($0.50 / gallon to date for my area just over the past 2.5 months) and so are costs for things like food or even dining out.  It costs more to do business today and the airlines are subject to the same events that drive costs as we are.  If you’re laboring under the idea that airlines are fat cats just squeezing money out of people, well, reset your mind on that.  One has to wonder why anyone would go into the airline business given the very few profits available.

But if you want the best price, it is time to get smart and if you do play it smart, you’ll not only be rewarded but airlines just might start paying attention to customer dissatisfaction as well. 

It’s hard to do but start by figuring out what your needs are not just in going from Point A to Point B but also who you are traveling with, how much luggage you might take and whether or not you might be more flexible with your travel dates.  Let’s say that you, your spouse and one child are traveling on a vacation.  Can you combine 2 or more people’s clothing needs into a larger suitcase and keep it under 50lbs?  If so, you may well save on baggage fees.  With baggage fees costing people as much as a couple of hundred dollars extra for this kind of trip, there are real savings to be had.  My own family follows this philosophy and we’ve discovered that we can generally eliminate at least one bag to be checked and often two.

Consider your choice in airports.  Many metropolitan areas have 2 or more airports and those choices can yield big savings.  Perhaps it costs less gas to access one or another.  Often rental cars at a secondary airport can be less expensive than at the primary airport (this is that demand thing again).  Low cost carriers like secondary airports because it costs them less to fly there.  Shop your choices. 

In addition, if you’re already going to rent a car, check to see if there is another airport within 1 to 1.5 hours from where you want to be.  Sometimes the savings can be huge and well worth the drive.  I once flew to Tampa Bay for $140 less than flying to Orlando.  I was already renting a car and it cost me just about 1.25 hours to drive plus the gas cost which then was cheap but even today would yield worthwhile savings.  Particularly when you multiply that fare savings by 3 or more who are traveling with you.

See if leaving on a day different than a Friday or Saturday saves you money.  You might reduce your vacation stay by one day out of 7 or more days but  you may be willing to give up that day for a savings of $300 or more, right? 

Check the alternative LCC carriers as well as the traditionals.  Allegiant Airlines and Spirit Airlines are the airlines of fees, for certain, but if you can plan your trip right on them, you may well save hundreds of dollars.  You might not be in the most comfortable seat but if you’re savings $300 or more on air fares, I’m guessing 2 hours in a 30″ seat pitch seat will be tolerable if you’re on a budget.  If you do choose one of these airlines, READ THEIR RULES CAREFULLY.  Everything costs a fee and several are “opt out” type choices when purchasing your ticket. 

Don’t rule out legacy airlines.  It’s often surprising to me just how competitive legacy airlines are when faced with fighting for business against a few LCC carriers in a market.  Sometimes, when it comes to advance purchase fares, the legacy carriers are the better deal even with their fees. 

Are you using airline miles to pay one or more fares?  Well, maybe you can travel alone and your family can travel another airline cheaper but you can all arrive at the same airport within an hour or so of each other.  It seems awkward, yes, but I also suspect that if you can save $200 or more with this strategy, it might just be worth spending an hour in an airport waiting for the second part of your party.

Before you buy, compare, compare, compare.  You have a computer so use it.  Put both your airline choices up on the screen and be certain of every thing you’re paying before you pay.  Fuel surcharges are going to make a big difference in the cost to families this summer and if you can fly an airline that doesn’t have them, you may well save significant money.  The same is true for baggage fees.   Even airport taxes and fees can be different between a primary and secondary airport in a city and different enough sometimes to more than pay for the inconvenience of choosing one over another. 

Most people would use great care and consideration when spending $1000 or more on a piece of furniture for a home or a home improvement.  Why not use the very same care and consideration on your vacation?  There are real savings to be had out there for someone who invests an extra hour of time into their search.  That extra time frequently results in big savings and everyone likes an extra $100 bill in their wallet.

Filed under: Airline Fees, Travel Hints by ajax
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It’s common for a variety of friends and family to ask me about obtaining a “cheap” fare to some destination throughout the year.  It’s a frequent request as we approach spring but this year what I’m hearing most is the comment that fares are “way up” compared to what they usually are.

Yes, they are.  Air fares have been rising steadily over the past several weeks with one airline bidding up the fare(s) and the others following with increases of their own.  Typical fares are much higher and often as much as 25% higher than this time last year. 

In addition, airlines are returning to the fee game and several have recently tweaked their fees to get more revenue in the door especially in advance of leisure travel that usually finds people checking more luggage.  JetBlue just raised its 2nd bag checked fee to $35 and American Airlines has added a “booking fee”. 

And now we’re hearing about fuel surcharges.  These are, in some ways, the most irritating fees attached to base fares around.  While they must be specified prior to booking, these fuel surcharges aren’t necessarily advertised as a part of the base fare.  In addition, they’re often a one fuel surcharge fits all flights approach.  That means a $20 fuel surcharge is supposedly covering fuel costs on both that 500 mile flight as well as that 2300 mile trans-continental flight.

Is this about fuel?  Yes, it is.  When oil prices rise such as they have over the past 2 months, jet fuel prices actually rise faster and higher.  They are not proportionate to the cost of a barrel of fuel and that has to do with how a barrel of oil is refined into various types of fuels and other products.  Fuel prices are skyrocketing and they threaten the airlines in two ways:  in demand as well as costs. 

The airlines well know that rising fares can cost them passengers and that is evident in the fact that airlines are already announcing reductions in their plans to grow capacity over this calendar year.  American Airlines announced it was going to bring back several hundred flight attendants as well as hire new flight attendants (with special skills for international flights) just a few months ago.  Now it is announcing that it will offer several hundred flight attendants the opportunity of a leave of absence because it will not grow its capacity quite as much as planned.

Cuts in capacity are designed to improve how much someone is willing to pay for a seat.   It’s simple economics:  if there are 100 seats but 110 potential customers, the airline is liable to get a premium price for its seats.  If there are 100 seats and just 90 customers available at a particular price, those seats will either fly empty or the airline has to cut prices to get them filled.  It’s a difficult balancing act because those seats fly every day whether there is a body in the or not.  If you cut your prices too much, you’re liable to fly that aircraft (even full) at a loss.  If you raise your prices too much, you’re liable to fly that aircraft at a loss as well due to empty seats. 

The various fees that legacy airlines charge are designed to boost the average fare and maintain profitability.  It’s notable that US Airways has said that but for their additional revenue from these ancillary fees, they would be unprofitable.  For an industry that has seen exceptional losses over the past 20 years, those fees represent a new era of profitability and survival.

Are they fair?  Reasonable?  In many cases, I think not.  I think the approach to fees has been poorly executed and has potentially driven away customers because of airline clumsiness in instituting them.  Airlines are rather new at the game of marketing value added to their business.  The entire industry was founded on and run by the maxim of providing the best value added product for over 70 years.  Now, they’re expected to figure out how to earn more profit by charging for value added items and their novice approach is very noticeable.

The notable exception to this is two airlines:  Southwest Airlines and jetBlue.  These airlines haven’t ignored fees but they have paid attention to the game better than most.  When you pay a fee on one of these airlines, there is added value and the customer perceives added value.  The profitability and increased revenues that Southwest has experienced is firm proof of that.

Tomorrow:  What to shop for when it comes to fares

Filed under: Airline Fees, Travel Hints by ajax
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Later today, I’m flying from Dallas to Chicago and this time I’m trying out Southwest Airlines’ service from Love Field to Midway Airport.  Both airports are the quintessential second airports for their respective cities and both have a strong Southwest history. 

Why this airline and these airports?  I’ve long advocated that you can enjoy a better, less expensive flight on Southwest that is essentially the same time elapsed “door to door” as a flight on a carrier such as American Airlines. 

So, I’ll be making a much quicker drive to Love Field airport where I’ll make a much quicker transit  through security to my gate.  I did pay the $10 Southwest Fee to early check in to improve my seating options (and it’s a fee that, for Southwest customers, does provide extra value).  My flight, however, is not non-stop.  I’ll be on a one-stop Southwest flight that pauses briefly in St. Louis.  Total programmed flight time?  2 hours, 55 minutes.

I paid $408 for this trip last Saturday compared to American Airlines fare for similar departure times on the same days of $659 and that does not include the fees for one checked bag that I’ll have to take with me.  All in, AA would have cost me (or, rather, my client) over $700. 

If I had taken AA, I would have had a much longer drive to DFW airport and a much more expensive one as well.  (One takes a tollway to DFW if one expects to get to DFW in a reasonable amount of time from where I live.)  The difference in time to get to each airport for me on a day where there are no traffic jams?  About 20 minutes less to access Love Field.

My Southwest flight time will be 2 hours, 55 minutes (if they’re on time) and a similar choice with American Airlines would be 2 hours, 30 minutes.  With the difference in drive time alone, I’ve just made up 20 minutes of a 25 minute difference.  When you account for the fact that I can arrive at Love Field with a bare minimum amount of time for passing through vs DFW airport where I would arrive about 15 minutes before my one hour deadline prior to flight time (because checking bags and passing through security at DFW can be easy or it can be real lengthy), I’ve just gained another 10 minutes. 

Since I”m arriving at Chicago Midway Airport, I’ll have a drive to my hotel in downtown Chicago that is nominally 6 miles shorter in distance and about 20 minutes quicker than if I arrived at Chicago O’Hare.  I’m now up by 30 minutes using Southwest.

At least in theory.

But let’s take a look at the contrasts in experiences I’m liable to enjoy between the two airlines.  On Southwest, I paid the $10 Early Bird Check-In fee so I’ll have a very high likelihood of obtaining a good, front of cabin seat on a 737-700.  It will be a fairly new aircraft and possibly a brand new aircraft.  It won’t be old and it won’t have old, worn out seats either.  I’ll enjoy 32″ to 33″ of seat pitch, most likely a friend flight attendant and no charge for a beverage.  Because of the nature of my trip, I have to check a bag and that comes free and on an airline with a good reputation for baggage handling and security.

If I had taken American Airlines on similar flight time, I would have enjoyed a 20+ year old MD-82.  Since I would have bought AA’s best economy price, I would have likely been at the back of the aircraft and sitting in old, worn out seating with 31″ of seat pitch.  My flight attendants would have most likely been cranky, older crew who have a reputation of taking out their job dissatisfaction on their customers.  (AA flight attendants can be good but in my experience the DFW and Chicago based crews are frequently hostile to customers.) 

My bag would be handled by an airline who had a less than positive reputation for baggage handling (and strangely I’ve had many bags delayed over the years on the DFW-ORD route) and only for a $25 fee each way.   If I had paid AA’s fee for priority boarding, I’d get earlier access to overhead bins but no options to sit in a preferred seat up front and an economy passenger on an AA MD-80 flight is going to have the options of “bad” and “worse” when it comes to seat assignments.

Savings in dollars:  About $300

Savings in time:  About 30 minutes door to door (if this works out as I expect).

What do I give up?  I don’t get frequent flier points on American Airlines.  Let me point out that my dollar savings alone just bought me a “free trip” if I wanted it.  Which would you rather have?  about 1600 frequent flier point or $300 in savings?  Which would you rather fly on?  An old MD-80 with old seats and a hostile flight crew or on a fairly new 737 with new seats and a friendly flight crew?

Once I complete this trip, I’ll write up what actually happened.

Filed under: Airline Fees, Airline Fleets, Airline Seating, Airline Service, Airports, Frequent Flier, Travel Hints by ajax
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Who owns a ticket?  A LA Times Columnist wrote THIS column about the inconsistencies that airlines offer when it comes to what you’re actually buying when you buy a ticket on an airline.   In short, a man wanted to not use the first part of a ticket but still wanted to use the 2nd and last part of a ticket for his booked flight.  When he called US Airways, they explained that if he didn’t use the front end, then it was a ticket change and he would be charged a change fee plus a higher fare.

So, who owns the ticket?  And, more importantly, why do legacy and SuperLegacy airlines treat customers like they’re in Las Vegas where the “house” always wins?  This isn’t a business model that really exists anywhere else. 

Part of what has to be understood is that when an airline is advertising a fare for a route, it’s really advertising or making available thousands of fares for hundreds of flights.  It’s better to think of each seat on each airplane for each flight as having its own price.  That price is, like many things in this world, set by demand.   Now, many of those seats have the same price.  Airlines are essentially contending that you are buying non-refundable access to that specific seat on the aircraft (non-refundable in the case of the lowest cost fares anyway) and when you don’t use that seat, it costs them.

There is some truth to that.  That seat starts out “fresh” when it is loaded into the travel systems with a fare.  Over time, the fare for that seat may vary considerably.  It may be bid up in price by high demand and it may fall to lower and lower prices as no one buys that seat and the departure for that particular flight and seat grows nearer.  Once it’s sold, it’s difficult to sell it again for the exact same price.  If you bought 2 months in advance and want to change flights 2 weeks in advance, the airline has lost about 8 weeks of opportunity to sell that seat and it wants you to pay for that opportunity cost. 

There is some logic and fairness to the airlines’ point of view.  However, many people question why they cannot re-sell that seat on to someone else if they’re unable to use it and transfer it into another name for a nominal transaction cost.   It’s a good question.  Airlines don’t want people buying tickets far in advance for a low price and then re-selling them much later for a profit to them but at a price that competes favorably with the airlines’ advertised fare (that is likely much higher).  Again, the airlines do have, to some degree, a legitimate claim.

The problem comes, in part, from how airlines present what you’re buying when they market that space on a flight.  It’s presented as a general price from point A to point B when it really is a specific seat on a specific flight from point A to point B.  In the case of the man described in the column, I think you could reasonably argue that while he may be required to “give up” the portion of the fare on the first flight, he shouldn’t be charged a huge change fee plus a fare difference to simply travel back on the second flight as he already planned because the airline will be capturing its revenue still while having the potential opportunity to re-sell that seat again at a higher price.

Some airlines play a bit more fair and the best at this is Southwest.  They don’t do change fees and that’s good.  However, they do charge you fare differences if you need to change your flight.  Sometimes, on Southwest, you’ll pay more for that new ticket difference than you would on other airlines by buying a new ticket and abandoning the Southwest ticket.  Many people have pointed this out but it’s an infrequent occurence and the better point is that Southwest treats this situation in a manner that, to most people, strikes them much more “fair” and far less a game where  the house always wins.

The transaction costs for changing a ticket are relatively small.  I think they would be covered by a fee of no more than $25 or $30.  However, the airline isn’t just charging you transaction costs.  It is also charging you the average loss that comes from missing the opportunity to re-sell that seat at a higher price.  However, it isn’t as simple as that either.  If the fare is dramatically higher for that same seat when a person wants to give it up and change it, it’s because there is a strong demand for it and if there is a strong demand for it, they’ll likely re-sell it again, too. 

Should a person be able to transfer a ticket into another name?  I would argue that it is probably inappropriate in most circumstances.  I think there are exceptions to that and they should be acknowledged.  For instance, I think it should be possible to transfer a ticket to another name provided that new person lives at the same address and can prove so with a valid ID. 

Are change fees unfair?  To some degree but not nearly as much as many think.  Low fares have driven this change fee and its the price we pay for the lowest fares we’re offered.  What I do think could be done here is an insurance scheme. 

You could offer a structured insurance scheme where for one fee, a person would be allowed to change flights but not destinations.  For another fee, they would be allowed to change flights and destinations for only the fare difference(s).  These fees could be as low as $15 or $20 per ticket and they would help mitigate people’s risks and provide revenue to go towards lost opportunity. 

Or you could just approach it like Southwest and change the model, accept some risks along with your passengers in return for fierce loyalty.

Filed under: Airline Fees by ajax
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Expedia has made another move against American Airlines in removing them from their system altogether now.  That means that American is no longer listed on 2 of the 3 biggest online travel agencies:  Orbitz and Expedia.   As I write this, they remain on Travelocity.

American says that they aren’t experiencing any decline in business and that may remain the truth for now as they’ve been in the media enough to remind people to go directly to their website for booking passage to a destination.  But that doesn’t mean this works for AA in the long run.  It’s notable that neither Delta nor United nor any other airline has decided to remove their listings from the big 3 agencies and that might just be because they are enjoying even better bookings all of the sudden.

American says this is about offering a better experience for the consumer by offering their direction connection that will tailor flights to the person shopping.  Online travel agencies says that that methodology means that American controls what the shopper sees instead of giving the shopper the chance to see the lowest fares. 

The truth is, the online travel agencies are more “right” in this fight than AA is.  This is about raising revenues by only letting the customer see what AA wants them to see based on their history. 

Airlines such as Southwest and jetBlue have made their business rely upon their own websites for booking historically and they have done fine with that approach.  Now both airlines are seeing value in being listed alongside others on some of these sites and that is as much based on accessing a larger audience as it is the fact that they have competitive fares.

I suspect we may see a different set of results from either party in another 2 to 4 weeks.  Both sides have to determine the real impact to their business models and then decide if the lost revenue (and believe me when I say both sides are losing money over this spat) is worth it in the short term.

Filed under: Airline Fees, Airline News by ajax
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Continental Airlines recently introduced a new feature for its fares called “Fare Lock” which will allow a customer to “lock in” a fare for 72 hours or 7 days (depending on fee and your needs) so you can think about your purchase.  In this age of airline business, I never thought I would see a fee I liked but I like this one.

The fee is reasonable at $5 to $9 and win-win for both parties, in my opinion.  There is value added for the consumer and the airline gets just a little bit more information to be used for its revenue forecasting and analysis.  Now, you are buying insurance with the very company that can manipulate fares but if you think Continental is going to manipulate those fares just for you, you’re kidding yourself.  This is a convenience fee when it comes to fares and it allows you to lock in the fare while you consider both your travel requirements as well as other fares. 

It’s a fee that I would and will use myself. 

One thing I find curious, however, is that this is a Continental fee and not a ContiUnited fee.  I would have expected the announcement to come from both sides of the house and it didn’t.  This leads me to believe that United’s system might not be able to accomodate such a fee or that this is experimental and Continental was deemed to have the best customer base for trying it out.

Filed under: Airline Fees by ajax
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Spirit Airlines has decided to do an Initial Public Offering (IPO) of stock and thinks the value will be about $300 million. Spirit is currently privately owned by a number of high profile investors who, it has been said, are ready to cash out of their investment. 

Does this mean they don’t like it?  No.  Their investors are venture capitalists and by their nature, they look for an exit once an investment has been successful.  Spirit has enjoyed that success and according to this story in USA Today, they make a good case.

Their aircraft utilization has risen from an acceptable 9 hours per day in 2006  to 13 hours per day.  They are now earning over $30 per passenger in ancillary revenue vs just $5 in 2006.   They’ve also managed to earn a profit for each of the last 3 years in what has been arguably the worst climate possible for airlines.  While they have had an initial loss for this year, blaming it on higher wages and fuel costs, expect another profit for the full fiscal year. 

Spirit isn’t an airline I would typically fly but I will concede that they have found an untapped market following what is almost a Ryanair+ business model.  They’ve lowered base fares dramatically and earned good revenue from “unbundling” their services and while many don’t like what they’ve done, their relatively full aircraft and annual profits point to the fact that many are happy to take the deal.

Spirit outlines their intent to retire debt and fund growth from this IPO and to do that, Spirit is going to have to branch out from their Florida/Gulf/Caribbean marketplace and attempt operations in other parts of this country.  They’ve done well with their Caribbean focus and I expect they’ll look for other cities to take advantage of that strength.  Perhaps in Texas or California.  It is interesting to me that they’re about to start service from Chicago O’Hare to Las Vegas and that’s their market:  inexpensive fares to leisure destinations.

Whether you like their approach to airline service, you can’t argue against their success and they do have a solid business case going forward.  They also face some risks going forward like any airline.  As they age, their labor costs will go up, for instance.  As they succeed in their various “fees”, other airlines will likely adopt some of their practices.  But Ryanair has an aging labor force and they continue to do well.  Other airlines in Europe have adopted Ryanair-like strategies.  Ryanair is still succeeding because they’re still executing their strategy better than anyone else.  Spirit has that same potential.

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A few days ago, I was asked to help someone put together a multi-stop itinerary from Portland, OR to Chicago to NYC to Portland.  A quick check of travel sites revealed a pretty good price of $525 all in from Delta.  The problem was multiple stops at Delta hubs in Minneapolis, Detroit and/or Atlanta.  Each segment had a stop and each stop was a not too short layover, too.

So I started looking for alternatives.  Now, this person wanted to fly into Newark’s airport for the NYC part for convenience and that makes alternatives a bit more difficult.  But they were traveling into NYC on a Saturday night or Sunday morning and that makes La Guardia go from “ugh” to possible.

After a few minutes, I found flights on Southwest Airlines for PDX to Chicago Midway (MDW) that were more than reasonable.  Then I found very reasonable flights from MDW to NYC (La Guardia) on Southwest too.  Finally, Continental offered a nice one-stop to Portland via Seattle for an extremely reasonable price.  All in, those tickets added up to about $530.  Best of all, only one connection was necessary and it was an easy one in Seattle. 

The traveler would also be able to take advantage of SWA’s no bag fee policy saving them about $50 as well.  In fact, by that accounting, suddenly the fare difference was $575 plus taxes for Delta and a bunch of bad flights on bad aircraft vs $530 on SWA and Continental on good flights with nice aircraft.  Their overall travel time was shortened by hours and their convenience and price went up.  It’s good to look for alternatives and it’s very wise to remember Southwest Airlines when you’re planning your trips.

One odd note:  I discovered that Delta really dominated flights from MDW to other destinations such as NYC-LGA and NYC-EWR but only as connections to their hub cities in Minneapolis, Detroit or Atlanta.  At least by price they did.  But the connections ranged from barely OK to “what the hell are they thinking”.  And suddenly it dawned on me why ContiUnited decided to give up those slots at EWR to Southwest. 

ContiUnited doesn’t fly from EWR to MDW non-stop.  In fact, I couldn’t find a connection on either airline to that airport.  They do, however, have a strong schedule to Chicago’s O’Hare airport.  By giving those slots up, they virtually assured that SWA would fly in competition with Delta to Chicago rather than ContiUnited and do it very competitively.  In other words, they got the attack dog to go after their biggest competitor in the NYC area. 

Is there some potential for competition on ContiUnited routes?  Sure but it is pretty limited since SWA flies to secondary airports where they (ContiUnited) are (mostly) strongest.  They’ve already seen that SWA has a limited effect on their pricing under those circumstances.  And, as I’ve already said in an earlier post, they already know how to compete with SWA in the circumstances where they might directly compete.  Best of all, they made the DoT very happy to offering a big chunk of slots to SWA instead of trying to pull a Delta and parcel them out to tiny players.

And that makes me wonder why Airtran never used its EWR slots to fly to Chicago where they already had a presence.  Their business class product would have fit nicely with the value oriented, entrepreneur flier between those two cities and offered great convenience between downtown Chicago and Manhattan.

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American Airlines is introducing a new fee.  This time, a fee from $19 to $39 can you get you a seat up front in coach including bulkhead seats and it will allow you “group 1” boarding. 

Personally, I’m all for offering more varied product on aircraft.  That’s the one development among “debundling” that I am in favor of.  However, please offer me something of real value.  Frontier gets it.  United gets it.  Airtran gets it.  Even Southwest Airlines gets it. 

AA doesn’t get it.  A seat that has no more pitch or other benefits except that it is “up front” and I can potentially board earlier (and sit in an uncomfortable seat longer before take-off) isn’t more value.  If the seat comfort isn’t going to change, do I really care if it’s up front or in the back?  Well, maybe I do if I’m on a cranky old MD-80.  Does it afford me more opportunity for overhead space?  No, not really.  Despite reports to the contrary, it’s just not that hard to find overhead space.  Sure, the bins are more crowded but you can still access them. 

If anything, it’s the jokers who put their luggage up front and then take their seat in back that annoy me.

But I’ll gladly pay for more seat pitch and a generally more comfortable seat.  I’d gladly pay $20 / segment to gain 2 more inches of pitch alone.  And I can already get that on an airline of my choice in most cases.  For the prices AA is offering for this “service” you can more often than not get an Airtran business class upgrade.  You can get more seat pitch and more service on Frontier.  You can get more seat space on jetBlue.  Southwest Airlines’ fee for priority boarding affords me a real opportunity to choose one of the best seats in a 737 for a cheaper price and you can bet I’ll have bin space on the SWA flight no matter what since they aren’t fools and charge exorbitant fees for baggage checking.

Perhaps this might have some appeal to a business traveler but I don’t think such a fee is going to be reimbursed as an expense.  That certainly wouldn’t fly at my company, a major aerospace and defense firm. 

How about a $25 fee that A) gets you a exit aisle seat and B) *guarantees* your checked luggage arrives with you?  That might be particularly attractive to AA flyers.

At the end of the day, for any traveler except the most extravagant, it’s money that can be better spent elsewhere.  And if you are that extravagant, you’re probably getting an upgrade to first class anyway.

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I know that these days it seems as if I’m at war with American Airlines but the truth is, they just keep running into walls.

ABC News has THIS story about a woman named Danielle Covarrubias who became pretty angry at American Airlines losing her bag.  However, when they also refused to refund her bag fee, she decided to sue American Airlines for $5 million.  The class action lawsuit was filed in Washington state, where Ms. Covarrubias lives.

But after a few days, it’s come to light that, according to American, Ms. Covarrubias wasn’t on the AA flight.  It was cancelled and she was re-booked onto another airline which lost her bag.  That was from Grand Rapids to Chicago.  No one disputes the bag was lost but it appears it was returned to her the following day.

AA says that they do allow a refund claim in these events as a part of a lost bag claim and it is unclear if Ms. Covarrubias filed such a claim.  Regardless, it points up what I’ve been saying for more than a year.  If you’re going to charge a bag fee, be prepared to deliver or refund that fee when you don’t deliver it on time or at all. 

Travelers are enraged and there is enough traction for a class action lawsuit such as this.  Even if this one doesn’t end up in court, I do believe there will be another that does.  When it does, the issue will be over whether or not an airline is entering into a contract to carry that bag with guarantees and I don’t think their fine print will save them.  There is plenty of law to show that there is an implied contract and that breaking the contract means you owe a refund of some sort.

Revenue from ancillary fees such as this looks great to airlines but they haven’t yet really felt the pain of what those fees imply.  To be honest, I’m a bit surprised that it has taken this long to see something like this. 

More important, it’s another case of airlines shooting themselves in the foot.  This problem was easy to solve and even easier to avoid.  Give a refund instantly when you lose or misplace a bag for which a customer has paid a fee. 

That much is a no-brainer.  It isn’t hard to empower an employee to do so.  You only have to ask 2 questions to arrive at an appropriate action:  1) Did the customer pay a checked bag fee and actually check a bag?  2) Did the bag arrive with the customer?   If the answers are Yes and No respectively, make that refund immediately.  Credit it back in exactly the same manner for which it was paid and do it instantly and with sincere regrets over the trouble caused. 

Denying that refund automatically is not only a bad PR strategy, it’s just simply wrong.  In this country, we do not expect people to pay for things they didn’t get.  Airlines are styling these fees as “services” and, in this case, service is exactly what the customer didn’t receive.

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One thing coming out of the 2nd Quarter financials from several airlines is, once again, just how much baggage fees are adding to revenues and, more importantly, profit.  United President John Tague is expecting that this kind of ancillary fee could soon be adding a billion dollars more to revenue and that is from its current levels of $350 to $400 million.

Like them or not, those numbers are hard to ignore. 

It does make me wonder how Southwest Airlines will continue to defend its no baggage fees approach going forward.  Load factors on airlines are at astonishingly high levels and that means that Southwest isn’t necessarily siphoning off customers from airlines with those fees.

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I like to watch the fare prices on various routes that I fly from time to time but none more so than the Dallas to Milwaukee run.  To me, it’s an example of what real competition can do and I’ve written about it before.  You can read my earlier post HERE.

Well, I took some time to see what was going on with that route now by sample fares and flights for mid-week departures between the two cities in August.  First, the good news:  Fares are holding steady at or about $170 for advance purchase tickets. 

Second, the better news:  Airtran is using the Boeing 717 on that route already.  No SkyWest CRJ-200 regional jets, we get the real Airtran on a real aircraft that is really pretty comfortable.  I figured Airtran would move in with the larger aircraft if only to put pressure on Midwest Express.

Now some bad news:  Airtran is only flying an early morning and late afternoon flight on the DFW to MKE run.  It’s worse on the MKE to DFW segment with a plain morning departure and late evening departure.  I’m guessing it’s the best they can do for now but they’re going to need at least one more flight to make that really work.  Their current offering via Atlanta is *not* what I meant by needing another flight either.

Midwest  aka Frontier aka Republic is hanging in there.  They have 3 flights using the E-170 Embraer jets and that’s really not a bad aircraft for that route.  With 2×2 seating and a bit bigger cabin, it works for what is essentially a long and thin domestic route.  Well, long-ish anyway.  The bad news is that Midwest  aka Frontier aka Republic has its first flight on the DFW-MKE run after 10am in the morning.  That’s about 2 hours later than necessary.

American Eagle is hanging in there.  This is a route that used to often cost as much as $300 round trip just 3 years ago and that was the best fare you could get.  Often the only tickets to be had were in excess of $500 and the only choice you had was to fly to Chicago and take the bus if you wanted to save money.   But here is the interesting part:  American Eagle has its 5 flights a day and I will say they’re well laid out in terms of departure and arrival times.  However, American Eagle is now using the CRJ700 on 3 of those five flights (the remaining two use the clapped out ERJ-140)  and their fares are as competive as anyone’s. 

And then there is Southwest.  Southwest’s cheapest fares are competitive with everyone else’s and continue to be one-stop flights with no plane changes.   Those flights are now running about 3 hours, 25 minutes however and that’s a bit longer than they were taking earlier this year.   The non-stop flights of the other airlines are doing it in 2 hours, 20 minutes.   Still, they are the bargain choice for 2 reasons.  First, Love Field is cheaper to fly from for more people in the DFW area in that its taxes and fees are slightly cheaper and the travel to Love Field and parking at Love Field is cheaper too.  Second, Southwest still isn’t charging for baggage.  That means for someone checking a bag, the savings could range from $35 to nearly $80 and that’s real savings. 

In practical terms, for me as a passenger to that destination, I probably could save as much as $50 each way in “real” savings by using Southwest.  And I’d do it in the aircraft that had the *most* seat pitch of those serving the routes.  That’s worth the extra hour of transit time on a leisure flight and might just be worth it on a business flight too. Why?  Because my door to door time in the Dallas area is likely to be about the same using Love Field or DFW.  I don’t have to drive as far to Love Field airport, take as long to park and/or transit into the terminal, check in quite as early or frenetically and that amounts to probably as much as an hour gained making the trip from the door of my house to the door of my family’s homes in the MKE area about the same no matter which airport and airline I take. 

But I can save about $100 round trip if I’m flying with checked baggage and that’s a deal. 

If Airtran wants to win Miwaukee, this is an important route for them to succeed on.  They’ve got the right equipment for the route now but they’re going to have to work on their frequencies and departure times a bit to really win.  Right now, their schedule looks like a compromise.

Midwest is probably continuing to do well but let’s see how they do when the brand changes to Frontier.  I’m not saying they’re out of the game.  To the contrary, this whole competition thing on this route could end up being Midwest/Frontier and American Eagle again in a year or two.  Midwest has good frequencies, good flight times (mostly) and good service.   However, Southwest will win this route, I think, when they can start flying it non-stop But that opportunity is still 3 1/2 years away.

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It’s rare for me to comment on in flight entertainment and internet access on aircraft because A) it doesn’t interest me that much and B) these developments seem fractured at best. 

There isn’t much harmony between IFE offerings between various airlines.  Everyone has their own system and their own content and controls it in their own way.  The differences range from portable media players to LiveTV to offerings that approach what you might be able to get on cable TV.   Some airlines charge a lot for it, some charge a little and some don’t charge for it depending the fare you’re traveling on.  It’s terribly mixed up and in the United States, you never know what you might be able to access from one flight to another.  Who wants to make plans for that?

Internet access is a bit different in that most airlines are adopting the GoGo system (although Southwest has adopted Row44’s offering) but even though the system is (mostly) consistent, you still don’t know what aircraft it will be on in many cases and it certainly isn’t something one plans on having available. 

The recent conversation about JetStar offering iPad units for rental and IFE got me to thinking about what’s wrong with IFE and internet access on aircraft in the US. 

Value.

The pricing for many of these options doesn’t really strike me as being of real value.  Most often, content is priced on a per flight basis and while that seems like value, it really isn’t.  I wonder if more revenue could be generated if airlines would get over their fears of earning money and change the value proposition.  Charge by the show instead. 

In other words, follow an iTunes model instead of an “all in model”.  Allow people to buy a movie for viewing for $2.99 or a TV show for $0.99.  Give them a rational a la carte option and I suspect on shorter duration flights, you’ll earn more revenue from people wanting a diversion for a price that is appropriate for the time they are on the aircraft.  Those a la carte pricings will also make “all in” package seem like more of a value the longer the flight is.  In other words, concentrate on the “take” per flight and less on recovering fixed “costs” per flight.  The truth is, the more people use it, the more they will use it in the future. 

Internet access seems like a “value” at first glance on most aircraft.   Originally priced from $10 to $12 per flight, GoGo InFlight is now offering packages that range from $4.95 per 1.5 hour flight to $12.95 for flights over 3 hours in duration.  That’s a step in the right direction but what I want (and what I suspect people want) is the option to just buy “time” no matter what the length of the flight is.  Few people plan to use their “service” for 3 or more hours on aircraft.  Offer them the ability to do “business” for 1.5 hours for $5.00 and I think you’ll see the use rates skyrocket.

The thing is, anytime someone doesn’t use these services on a  flight, you’ve lost a revenue opportunity you’ll never get back.  More flexibility in both access and price means a more attractive set of options for what is a widely varied group of people traveling any one day. 

When iTunes began as a store for music, music labels were horrified at sellings songs for just $0.99 a song.  Until they saw the revenue streams that developed.  Once they saw the use rate go up, they actually argued with Apple to offer more diverse pricing opportunities.  Bargain rates for slow selling items and premium rates for hits.  This is a model that I think will work better on aircraft because it fits more needs and because it is a model people have become comfortable with.

Filed under: Airline Fees, Airline Service by ajax
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The DoT has proposed new consumer protections on Wednesday and most aren’t unreasonable.  First, they’re proposing to require airlines to post complete information on baggage fees and offer refunds and/or reimbursement(s) for delayed baggage.  I couldn’t agree more.  When airlines began charging these fees, their attitude was the fee was for “transporting” the luggage and I believed that no matter what their stance, if you charge a fee for it, then you should also be prepared to offer minimum guarantees for that fee.  Alaska Airlines sort of did this.  No one else has and that’s wrong.  In fact, the stories of people trying to get refunds of their baggage fees when their baggage went missing or became delayed are just horrid. 

If you charge a fee for it, be prepared to be held to a standard.  The argument that it is a free market out there isn’t true anyway. 

Second, the Feds want better and more fair fare advertising.  Again, I couldn’t agree more.  One of the best things that happened for airlines in the past 3 years was a la carte pricing.  Except those a la carte prices never showed you your “all in” price until you were inputting your credit card for payment.  Customers should be able to see what they’re buying up front and they should know their options *before* their purchase is complete. 

Third, they want to ban price increases after a ticket is purchased.  Now, I’m not sure what they mean about this.  If they mean once you buy a ticket, it should cost more to change that ticket to another date, I’m not sure I agree.  I’ll be working to learn more about the intent here before I pass final judgement. 

Fourth, they want to require timely notice of flight status.  Mmmm, I’m not sure what their standard is but in my experience, this isn’t an area that airlines are doing a bad job in.  Yes, sometimes status is a bit tardy but I wouldn’t say it is impossible to get information on flight status or even see it updated regularly.  Again, I want to learn more about the intent here but I suspect this isn’t an area where we need much protection.

Fifth, they want to require special notice of bag fee increases and notification of baggage fees when a consumer purchases a ticket.  Again, I agree.  If the airlines want to charge these fees, then there should be prominent disclosure of these fees and they should be disclosed well in advance of the final purchase. 

Sixth, they want to increase the limits to be paid for being bumped.  Again, I agree with this.  The existing limits were created in an era when a hundred dollars was real money.  Bumping is at an all time high with the increased load factors on various airlines.  The consequences for overbooking and then inconveniencing a traveler should rise with the times. 

Finally, it’s my understanding that they want to tighten up and/or close loop-holes in the 3 hour rule.  Personally, I would wait 12 months before going any further down this road.  I’m in agreement with the 3 hour rule but I also think that it’s wise to make sure there are no severe unintended consequences as a result of the current rule.  One area I do think could be improved is preventing airlines from acting punitively towards passengers who do want to disembark from an aircraft.  The Feds should have required re-booking on another flight with no additional fees in the original rule or, at the least, set a maximum change fee for re-booking. 

All in all, airlines asked for this, in my opinion.  They’ve often abused customers in ways that we don’t see in virtually any other industry.  In fact, their ability to abuse customers points out that the airline industry is not a free market place.  It really is more of an oligopoly and one that even many LCC airlines happily participate in.  I look forward to reading more comments from others on these proposals and when I have more firm information on the exact nature of these changes, I’ll be commenting again.

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Apparently the nation’s airlines have decided that their best strategy is to add yet another fee for this summer.  This time it’s a peak travel surcharge.  See the CNN story HERE.  The question is, will it work?  Would you pay from $10 to $30 more over the published fare for a ticket this summer?

I wouldn’t.  Quick research on my favorite routes show the fares are already climbing rapidly and in two cases have nearly doubled for the least expensive ticket.  The economy hasn’t recovered, people are not earning more and unemployment is still exceptionally high.   I think air fares are very inelastic in price for consumers this summer if only for the leisure travelers. 

Capacity is still way down and clearly the airlines think they can earn more and not lose traffic.  Maybe they’re right too.  But I like to do a bit of content analysis on for sale ads from time to time to gauge where we might be when it comes to disposable income.  If you take a look at the ads online someplace such as Craigslist and see what’s being sold and at what price, you can often get a reasonably good feel for whether or not people feel they have enough income for luxuries.

Right now, I see a lot of firesales on goods.  Nearly new televisions, computers, appliances, etc. tell me that people are still trying to make do or survive.  I suspect a lot of people will defer travel for their vacations this summer in the end.  Advance bookings were strong in March and April, yes.  Prices were also exceptionally low in March and April.  A round trip flight from DFW to MKE in late July has climbed more than 20% in price already and that is on a hyper-competitive route. 

Will the airlines “stick together” on these surcharges?  I think someone might break in a week or two.  Unlike most fees, these surcharges are showing up in booking engines and it is quite possible one or more airlines might “break” from the pack as soon as sales soften.   In addition, while the legacies are doing this, the LCC’s aren’t showing many signs of adopting it yet except Airtran who did choose to add a  “flate rate” surcharge of $10 for 25 days in the period marked from June 10 to August 22.  Once again, Airtran acts a bit smarter.

Time will tell but I don’t see us enjoying a summer where all economic signs point to consumer confidence.  As I write this, the stock markets have had a big sell off over fears of volatility in Europe with respect to weak economies and a weakening Euro.   Unemployment rates haven’t made a real reversal in direction.  Gasoline prices are a bit up and food prices are too.  It’s doesn’t take much to reduce the disposable income of an average household and uncertainty means most will play it safe rather than just “accepting” yet another fare hike.

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The Dallas Morning News Aviation Blog has THIS story about Delta possibly deferring or cancelling its (inherited from Northwest) 787 orders for 18 aircraft (and 50 additional options.)  And this kind of makes sense to me. 

Northwest probably did need those 787 aircraft for its trans-pacific routes.  Its 747 fleet was adequate for some routes but others just couldn’t stand a 747 and Northwest doesn’t have any 777 aircraft.  The combined fleet of Delta and Northwest is a different matter, however. 

If anything, I think Delta might have one long haul aircraft type too many.  That said, they have 767 (Delta) and A330 (Northwest) aircraft for medium haul routes and configured so that each is nearly ideal for passenger density.  They have the 777 (Delta) and the 747 (Northwest) for long haul, high density routes as well.  Frankly, I think Delta might be better off adding the 777-300 to its fleet and retiring the 747 but that isn’t their plan.  They are refurbishing the 747 aircraft and extending leases on them.  Clearly Delta sees a profitable use for them at this time. 

The 787 isn’t going to be a trans-Atlantic aircraft.  Certainly not on the first routes for any airline.  A new(ish) build 767-300 or A330-300 can do those routes just as economically.  The 787 is better suited to routes like NYC to Tokyo or LA to Sydney or Atlanta to Rio de Janeiro or even the US to India.  Delta has the right sized aircraft for those routes.  

Delta can probably sell those orders profitably at this point.  There are a number of airlines who don’t have new(ish) 767s or A330s and there are several more who need to downsize from a 747 or 777 on long haul routes.  Airlines such as Continental and AA come to mind.  

Mind you, the enthusiast in me wishes all US airlines flew the latest and great aircraft.  The practical side of me says we’ll probably only see Continental take up its orders on schedule and even AA will likely take its time adding the 787.

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