Around the World

Miles flown for stories
2014: 271,099
2013: 330,818

Delta Air Lines Makes Profit Off Bag Fees — Good For Them!

Delta Air Lines Boeing 767-300ER.

Delta Air Lines Boeing 767-300ER.

There is no question that Delta Air Lines made a lot of money off bag fees last year — $952 million to be exact. While many other airlines made a load of money with bag fees as well, Delta gets the majority of the attention since they made the most. Some attention has been in late night routines (okay, Conan’s bit is hilarious, if not fully accurate) and others have been negative news articles. It seems odd that so many companies are getting pats on the back for making profit out of the bad economy, but airlines end up being punished, like they are somehow earning their money illegally.

Dan Webb, on his blog Things in the Sky, shows that although Delta made more in bag fees than other airlines, that doesn’t mean it is a large percentage of their revenue. His post has a very handy chart that shows that Delta’s bag fees are only 3% of their overall operating revenue. When looking at all major US airlines, Delta is actually 9th in the percentage of bag fees to total operational revenue with ultra low cost carriers Spirit and Allegiant at the top the list with 10.5% and 8.7% respectfully.

There are a lot stories out there hating on the bag fees, but one of my favorites is from Boston’s NCEN.com titled Fuming over Bag Fees. It is a classic story talking to passengers who are up in arms for the airlines not being “honest” with them and hiding these bag fees. Even for people that do not travel often, it is pretty difficult not to know about bag fees. For those that do not, every airline I have ever flown makes it quite clear when booking your ticket, if there will be additional fees for luggage so one can plan accordingly. Passengers in NCEN’s story act like airlines are literally opening their wallets and stealing their money. The author, Peter Howe, states that airlines are “addicted” to fees like they are some nasty habit that should be kicked. Since when does a business not like a new idea that makes them money and allows them to survive? Without bag fees, you can be certain that not as many airlines would be able to survive, there would be less competition and airfares would be higher overall.

Airlines are not charities — they are businesses looking to make profit. Airlines had this idea to charge passengers for bag fees, obviously many passengers pay this fee and airlines are able to make a profit. Why would an airline get rid of these fees? Customers have the ability to vote on these fees with their pocket book. Southwest Airlines and JetBlue both don’t charge you for checking a bag (on Southwest, you can check two for free), but of course, they are not always the cheapest option, even when checking a bag.

All that being said, yes I know that they are annoying when you are checking in and you have to drop another $50.00 for two bags. I do whatever I can to avoid paying bag fees myself and cringe when I end up having to pay them.I wish airlines would do a better job explaining why they are charging the fees. It seems like most airlines are like “we are charging them, take it or leave it approach.” I do not think most customers realize that weight costs money and instead of selling it as, “if you have a checked bag, you will owe more,” sell it as, “if you do not have a checked bag, we now let you save money.”

I believe that ala cart pricing will be the future of airlines. Many other businesses operate this way and why should I have to pay for something that I don’t want to use. When I book a hotel room, I might cringe when I have to pay $25 for parking and $20 for Wi-Fi and $5 for a bottle of water, but it is understandable. Why should parking be built into my hotel price if I do not have a car?

Image: Thomas Becker

Spirit Airlines Changes Fee Structure, Causes End of World Predictions (ok not really)

Spirit Airlines Airbus A320 landing.

Spirit Airlines Airbus A319 landing.

Spirit has announced a new fee structure and it is causing some airline-hate.

For me, Spirit is the best example of a US-based ultra low cost carrier. They have perfected the art of ala cart pricing, where they offer rock bottom fares, but then have fees for everything else. I think Ryanair holds the crown currently for world-wide uber ultra low cost carrier, but Spirit is quickly catching up. Spirit’s creative fees (ie charging for carry-on bags) causes a lot of media-drama, but it works for them. Most recently they announced a change in their fee structure. If you wait until the last 24 hours before your flight to pay the bag fees, you are going to pay more, but if you pay with more than a day’s notice, your fees stay the same.

Looking at some of the headlines related to this story, you would think Spirit just stole your first born child. For example, Jaunted titled their story, “Spirit Airlines Raises Baggage Fees Again, Screws Over Passengers.” Then, last night the The Consumerist had their story titled something like “Airline charges you a fee to pay a fee,” trying to insinuate some sort of evil double fee. However, it looks like they came to their sense, since this morning, the title has been changed to, “Spirit Airlines Adds Fee For Not Paying Your Baggage Fees Far Enough In Advance.” I have to give them credit for the change.

When first looking at the fees (early vs late, domestic vs international, early vs late), it got very confusing. Luckily Spirit simplified it for me into four tiers:

1. When reserving online more than 24 hours in advance: no price changes
2. While checking online or by telephone: $5 more
3. Waiting until at the airport check-in counter or kiosk: $10 more
4. Pay at the gate: flat $45 fee

Pretty much, if you do not do things last minute, you aren’t going to be charged more. Plus, if you are part of their $9 Fare Club, you will save $10 per fee. Why wouldn’t Spirit do this? People keep flying and paying their fees and Spirit made almost $56million in bag fees alone last year just from January to September (to compare, Delta made over $730million during the same time). This is a lot of extra revenue and very tempting for airlines not only to keep fees, but look at other creative ways to add to fees. According to Dan Webb on Things in the Sky, Spirit has been able to increase their over all bag fee per passenger from $9.59 in the fourth quarter of 2009 to $16.82 for the fourth quarter of 2010.

Some are trying to lobby the government to fight the bag fees and force airlines to include your first bag in the price of your ticket. This just seems inappropriate to me. In the long run, airlines will charge more overall for your ticket and fees and fares should be market driven, not dictated by the government.

Airlines like Southwest and JetBlue still refuse to charge passengers for their first bag, providing alternative for passengers. “Southwest has a 40 year history of sharing the wealth of the maximum value we provide — whether it’s in the Customer Service of our People, the predictable efficiency of our operation, or the transparency of our pricing and low fares,” Brad Hawkins with Southwest Communications explains. ” Bags Fly Free and ticketing changes are the pillars of our fee-free stance in not nickel and diming our Customers.”

If you don’t want to pay the fee, then either pay more for a first class ticket or choose an airline that won’t charge you a fee. Even with fees, airline travel with-in the US is very affordable and it is a good thing many can take it for granted.

Image: Noel back in Zurich

Southwest Airlines Says “No Fees” Campaign is Working

Some of Southwest's "Bags Fly Free" advertising.

Some of Southwest's "Bags Fly Free" advertising.

If you are an airline geek or have a TV you probably have a good idea that bags fly free with Southwest Airlines. As airline after airline started to charge for bags, Southwest stuck to their guns with no fees. More recently they have started a large advertising campaign hoping that passengers are angry at the fees and will change airlines.

Although personally I do not like paying bag fees, I understand them; weight costs money. The heavier the plane, the most it costs to fly and for now, fees are generating a lot of money for airlines. Passengers will complain about them, but are they changing airlines?

Southwest is making the bet that additional fees will not work in the long run and they will make more revenue earning more passengers than they are losing by not charging bag fees.  It is a big bet, but if they lose, Southwest can always start charging bag fees.

In May 2010 Southwest completed a survey of 3900 business and leisure passengers where they could pick from 55 choices what aspect is most important to them when choosing an airline.  Here are the top five “needs” for business travelers:

1. Has good safety record
2. Offers non-stop flights where I want to go
3. Has convenient flight times
4. Provides good value
5. Does not charge fees

And the top five for leisure travelers:

1) Has good safety record
2) Provides good value
3) Does not charge fees
4) Offers non-stop flights where I want to go
5) Has sales on fares

The fact that charging fees made it on the top five for business travelers is surprising to me. Most business travelers do not have to worry about the fees, since their company will pick up the charges. However, Southwest stated that even though business travelers don’t have to pay, some will have to process an expense report and explain why the additional charges are on the trip. That is annoying and takes time.

Southwest’s next step is to advertise they do not have ticket-change fees either. This won’t be as easy to get across to customers as the no bag fees. It is more obvious for a passenger to know if they have to pay for a bag. It is more difficult for passengers to know if something will come up and they will need to change their flight. Southwest feels confident they can get the message across with a series of new creative ads.

Gary Kelly, Southwest’s CEO and President, wondered out loud at their recent Media Day event, why airlines would do something passengers hate. He stated that Southwest feels lucky that almost every other airline is charging for bags and they are not.

We won’t know how successful no fees will be, but so far Southwest is reporting both growth in leisure and business travelers. I have previously stated it is not an airline’s fault for charging fees… passengers choose to pay them. If passengers are willing to pay fees, airlines will continue to charge them. If passengers rebel against the fees and choose airlines that do not charge them, you will see fees start to go away (although ticket prices will most likely go up). It is a great experiment and I think so far it is working well for Southwest.

Image by Paul Thompson with Southwest Airlines