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Airlines Get Billions From Unbundled Services 432

Posted by timothy
from the jet-set-crowd-with-pitchforks dept.
Hugh Pickens writes "In hearings before Congress, the Government Accountability Office (GAO) said that airlines reported revenue of $7.9 billion from baggage fees and reservation change and cancellation fees in calendar years 2008 and 2009 — fees on unbundled services that once were considered part of the ticket price. 'We believe that the proliferation of these fees and the manner in which they are presented to the traveling public can be confusing and in some cases misleading,' says Robert Rivkin, the Department of Transportation's general counsel. Published fares used by consumers to choose flights don't 'clearly represent the cost of travel when these services are added.' However, Spirit Airlines President and CEO Ben Baldanza defended the practice of unbundling, saying it allows his airline to charge lower fares (PDF) and allows the customers the choice to purchase the services or not."
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Airlines Get Billions From Unbundled Services

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  • 2+2=5 (Score:5, Informative)

    by TubeSteak (669689) on Sunday July 18, 2010 @02:55PM (#32944156) Journal

    If they're making billions (from unbundled services) that they weren't making before, then they obviously didn't lower fares all that much.

    This is good for them, not so good for us.

    • Re:2+2=5 (Score:4, Insightful)

      by ThreeGigs (239452) on Sunday July 18, 2010 @03:10PM (#32944276)

      that they weren't making before

      I'm sorry, but could you show me where it was TFA (or some other source) said that this revenue (not profit) is above and beyond what the airlines were making before?

      It matters.

      • Re: (Score:3, Interesting)

        by TubeSteak (669689)

        I'm sorry, but could you show me where it was TFA (or some other source) said that this revenue (not profit) is above and beyond what the airlines were making before?

        Airlines were bleeding cash.
        Their main expense (fuel) is mostly locked in through multi-year contracts
        and that hasn't changed over the timeframe we're talking about.

        Now they're not bleeding as fast.
        The only significant change has been the unbundling.

    • by Kjella (173770)

      Um, just because the services were bundled does not mean they were free. Part of your ticket went to paying for them, whether you used them or not. Imagine McDonalds started counting every meal as a sale of burger, fries and soda with a rebate. Their revenue on fries would skyrocket, but you can't seriously say they are making billions they weren't making before. And how you draw the conclusion from the increased fries revenue that the burger hasn't gotten cheaper I don't know. If anything it's those billio

  • by pablo_max (626328) on Sunday July 18, 2010 @02:59PM (#32944182)

    This is what really pisses me off; people take this attitude that, hey..I don't have extra bags, I don't want the food, so I am flying cheaper! Well guess what stupid, you're not flying cheaper.
    I travel very often so I have a fair idea of how the traveling costs trend and what I notice is that I get fucked harder and harder by the airlines, but since there is price fixing, there's not a damn thing I can do about it.

    Don't get me wrong, if the tickets WERE actually cheaper by not including the bags, than I would be fine with that. BUT, they are not cheaper. If anything, they are more expensive AND you pay your extra 100 bucks for bags. WTF?

    You want to go by weight? I weight 160lbs and my wife is 105lbs. Why should she pay the same like me? Why can't she have an extra bag?
    Why can that fat as fuck American sitting next to me get the same price?

    They should chance the whole thing to per lbs, yourself and bags included. That is whats fair.

    • Re: (Score:3, Interesting)

      by bkpark (1253468)

      Don't you remember when they started charging the baggage fees? They started doing this in 2008, when crude oil was, what, at $140/barrel at its height?

      The baggage fee was the option for many of these airlines (which didn't hedge their fuel costs wisely, as, e.g. Southwest had done) to stay in operation, without scaring all their customers away with fee hikes.

      Perhaps today when the fuel cost isn't so high, we are not exactly paying less by getting less service for the "basic" ticket. But it was certainly tr

    • Well guess what stupid, you're not flying cheaper.

      Sure you are - Here's some anecdotal examples:

      In 1990 I flew YVR-LHR. It was my first big backpacking trip after university. I remember the fare was around $950 - Around $1540 in today's dollars. By comparison, that same trip on those same dates would cost $1465 today - Almost $100 less.

      I remember around 1999 I used to fly YVR-DEN once a month on United. The flight, purchased three weeks ahead without a Saturday stay was around $1000. Indexed to tod

  • by UnknowingFool (672806) on Sunday July 18, 2010 @03:00PM (#32944200)
    Isn't Spirit airlines the same airline that will charge you for luggage whether you check-in or carry-on. [google.com] How many people travel with no luggage? Simply put the only choice Spirit offers you is whether you pay them more to handle your bags or pay them less for the privilege of handling your own bags.
    • Re: (Score:2, Insightful)

      by bkpark (1253468)

      You always have a choice in a free, competitive marketplace: you don't have to fly with Spirit Airlines.

      If you are flying domestic, you can always fly Southwest, which to date has no luggage fee up to two checked in bags (I think).

      If you are flying international, any of the major airlines (Spirit isn't even the biggest or second biggest airline) will be happy to take you w/o charging for carry-on luggages.

      One could make an argument about whether the airlines have been completely forthcoming about the costs

    • Re: (Score:2, Insightful)

      by osu-neko (2604)

      Isn't Spirit airlines the same airline that will charge you for luggage whether you check-in or carry-on. [google.com] How many people travel with no luggage? Simply put the only choice Spirit offers you is whether you pay them more to handle your bags or pay them less for the privilege of handling your own bags.

      You mean pay them less for the privilege of shipping your bags across the country along with you. Do you expect that UPS would do it for free if you just loaded it onto their airplanes for them and unloaded it yourself at the destination? If it really doesn't cost anything for Spirit to do this, they should go into competition with UPS -- they can put UPS out of business if they've managed to eliminate all costs of shipping beyond handling.

  • by Anonymous Coward on Sunday July 18, 2010 @03:00PM (#32944204)

    One of which is the excessive amount of carry-on baggage that people now bring on to planes. Instead of checking that larger bag and only bringing the laptop case/bookbag/etc on the plane, everyone tries to cram as much stuff as they can in their two carry-on bags so they don't have to pay baggage fees. On the airlines on which I have traveled they tend not to enforce the carry-on restrictions tightly, so many people bring oversized bags which monopolize the limited space available. As a result, you pretty much have to hover by the entry area on the concourse and rush on to the plane to ensure that you will be able to find a place for your single bag. Moreover, this rush for space creates a lot of tension between passengers. On planes with limited carry-on space I have seen arguments break out between patrons over the bag placement. It's distinctly unpleasant to be crammed into an aluminum tube while two people trade insults over space for their laptop case.

  • by v(*_*)vvvv (233078) on Sunday July 18, 2010 @03:03PM (#32944220)

    With our brilliant free market capitalism in place, a competitor should be here to the rescue to innovate and beat the crap out of these guys who don't take care of their customers. For we have a choice, and that makes our way of life the envy of everyone.

    Any minute now. Any minute!!!

    I am also waiting for a better cable company, better internet service, a better bank, and oh, a better PC...

    Any minute now!!!

    • Re: (Score:2, Funny)

      by Anonymous Coward

      With our brilliant free market capitalism in place, a competitor should be here to the rescue to innovate and beat the crap out of these guys who don't take care of their customers [...] Any minute now. Any minute!!!

      You're not thinking libertarian enough. We must allow the public to carry firearms through airports again and to exercise their second amendment right to defend themselves against what the common law considers theft. When companies find it too expensive to hire and replace drones to collect thes

    • Southwest (Score:5, Informative)

      by SuperKendall (25149) on Sunday July 18, 2010 @03:31PM (#32944456)

      With our brilliant free market capitalism in place, a competitor should be here to the rescue to innovate and beat the crap out of these guys who don't take care of their customers.

      There is, Southwest Airlines. No bag fees (a fact which is heavily advertised).

      The thing people like you don't realize is that capitalism is not an instant fix, but it does fix things in the long run - Southwest has been very popular and is expanding to more cities and locations. I can take that airline to a lot more places in the U.S. than I used to be able to, in part because of better customer service that made sure I would fly Southwest unless there was no other choice.

      How is that not capitalism in action?

      • Re:Southwest (Score:5, Insightful)

        by happyhamster (134378) on Sunday July 18, 2010 @06:01PM (#32945384)

        What free market fundamentalists like you fail you comprehend is that we humans have a relatively short lifespan. Life is too short to wait a decade for the mythical "competition" to maybe sorta improve the airline market. Free marketeers remind me of a religion. Those, too, promise that all wrongs will be fixed a few decades later once your life ends and you are in heaven. Maybe, but I'd rather have them fixed in this life, and soon. For the last 30 years, lunatic free market policies have caused crisis after crisis while making life worse for working people. It's time to dump this discredited, outdated religion for a 21st century pragmatic approach that actually makes life better for those who work, rich scum squealing notwithstanding.

    • Re: (Score:3, Informative)

      That company exists, it's called Southwest Airlines. Free Snacks, free soda, 2 bags up to 50lbs each are free to check, and you get your two carry ons. Oh, and their fares are usually around the cheapest. Sometimes they are $20 more than another airline, but you know you'll be paying more than $20 just to check a bag.

      I don't fly a lot, usually 4 - 5 times a year. But if I'm flying domestically, I fly Southwest.

    • Re: (Score:3, Insightful)

      by Dhalka226 (559740)

      I am also waiting for a better cable company, better internet service, a better bank, and oh, a better PC...

      I get your point and I do agree overall, but you picked some really bad examples. Cable companies are (natural) monopolies, and most ISPs are simply the cable companies or the phone companies, also a monopoly. Free market practices don't particularly apply there.

      Banking? There WERE small-town banks but most of them are closed these days. There are still credit unions and a handful of banks to ch

    • I am also waiting for a better cable company

      That is impossible as long as government controls block competition for your cable dollar (satellite doesn't really count being essentially unidirectional). So while you are railing on capitalism the very regulation you wish to impose on airlines is denying you choice in cable.

      better internet service

      See: Cable.

      a better bank

      There are great banks if you are willing to look beyond the monsters.

      and oh, a better PC...

      Found [apple.com] it [amazon.com].

    • Ticket prices (Score:5, Insightful)

      by AlpineR (32307) <wagnerr@umich.edu> on Sunday July 18, 2010 @03:36PM (#32944506) Homepage

      The problem is that the competition takes place on web sites like Orbitz [orbitz.com] or Travelocity [travelocity.com] where the only criteria for comparing airlines is route and ticket price. There's no indication of whether a particular airline charges extra for checked bags, carry-on bags, or refreshments. Nor is there any indication of how much leg room to expect, how often the airline departs on time, or how often the airline leaves passengers on the tarmac for six hours.

      When the only information passengers have is route and ticket price, the airline that can scheme to have the lowest upfront price will win.

      • Re:Ticket prices (Score:5, Insightful)

        by Pulzar (81031) on Sunday July 18, 2010 @04:16PM (#32944782)

        When the only information passengers have is route and ticket price, the airline that can scheme to have the lowest upfront price will win.

        Only initially, and only with very occasional travelers. Taking me as an example, I don't fly more often than 2-3 times a year, yet I've had my share of good and bed experiences with different airlines... and I'll always look for options from the airlines I had good experiences with while scanning through Kayak's results.

        Now, if they are much more expensive than somebody else, I'll consider the others... but I'll pay the 5-10% more to fly the ones I like.

        We all remember the crappy legroom, shitty entertainment options, and bad food, even if the search engine doesn't show it.

        • Re: (Score:3, Interesting)

          by Starker_Kull (896770)

          When the only information passengers have is route and ticket price, the airline that can scheme to have the lowest upfront price will win. Only initially, and only with very occasional travelers. Taking me as an example, I don't fly more often than 2-3 times a year, yet I've had my share of good and bed experiences with different airlines... and I'll always look for options from the airlines I had good experiences with while scanning through Kayak's results. Now, if they are much more expensive than some

    • Real economists, not the political panderers most people think are economists, have three words for you. "Barriers to entry."
  • by phlegmofdiscontent (459470) on Sunday July 18, 2010 @03:07PM (#32944252)

    I find it interesting that the airlines have unbundled services so that they can "lower air fares", yet they still can't seem to make profits the way they used to. This article in the NYT (see link below) points out that while passenger and freight volumes are back up to pre-recession levels, the airlines are still not making pre-recession profits. Another point that I found interesting is that passenger load factors are also significantly higher in the past. So from a cost-accounting perspective, the airlines have reduced or shifted several large factors in their cost bases: underutilized aircraft, "fees" for things that used to cost the airlines extra, and industry consolidation that should also reduce employee costs (two merged airlines don't need as many mechanics, pilots, or flight attendants). A couple more points should also give some food for thought. The aforementioned industry consolidation gives the airlines more power to raise ticket prices because of reduced competition (and fewer routes). Also, oil prices are not nearly what they were in 2008/2009, so that's another large expense that has been reduced.

    The point I'm trying to make is that the airline industry has seen major shifts that should in theory increase revenues while decreasing expenses. Something else must be going on and I don't have the whole story, but it makes me wonder if there is some serious mismanagement going on. Or maybe unbundling combined with all the other hassles of air travel are starting to make customers change their behaviors.

    http://www.nytimes.com/2010/07/19/business/global/19iht-ravover.html?_r=1&ref=business [nytimes.com]

    • by Cwix (1671282)

      Draconian security measures are scaring customers off and costing the airlines extra. Not to say that the airlines are blameless.. they dont lower prices, but institute hidden charges for things like luggage.

  • by xzvf (924443) on Sunday July 18, 2010 @03:13PM (#32944304)
    The problem with the current system is you can't compare costs easily between airlines. Plus if you have a complaint your only option in most airports is to suck it up and do what they say. Even if they are clearly in the wrong. If you complain to vigorously, they involve security, which makes flying in the future more of a pain in the ass. They avoid the overbooking flight rules, by offering useless credits for future flights, that can only be redeemed for places nobody wants to go to at times nobody wants to fly. You can't walk away and not use them when poor service angers you. Tickets are mostly non-refundable, changing flights has a ton of silly rules, airline employee's have no incentive to keep you as a happy customer, so canceling you flight on one airline normally means to pay out the nose to file another equally poor option. Plus if you fly a lot, but with multiple airlines, you are still treated like cattle, because you don't have status. It is a broken industry, that needs to be disrupted, but high capital costs, limited access to gates and no viable alternative have left us no choice.
    • by will_die (586523)
      It is extremely easy to compare costs of different airlines just goto places on the web like orbiz, expedia or travelocity all of them allow you to compare different airlines and you can make an easy decision if you want a cheap flight with few extras or pay more for additional services.
      The next couple of comments show no experience did you really mean to imply that airlines place you on the cannot fly list if you complain? All voucher offers I have been given are for money on future tickets so no worthl
    • by WillyWanker (1502057) on Sunday July 18, 2010 @04:04PM (#32944710)
      All of this. Flying used to be such a pleasure, and now it's like a root canal. Between all the extra fees that make it impossible to compare rates and know exactly how much it's going to cost you in the end, the ridiculous security rules that seem to change daily, the overcrowded planes with seats designed to extract pain from even a normal-sized adult male, and all the damned nickel and diming to death and I swear I'd rather take the train. Or a ship. Or hitchhike for Christ's sake.
  • Baggage in the US (Score:4, Interesting)

    by Robotron23 (832528) on Sunday July 18, 2010 @03:14PM (#32944318) Homepage

    When heading into the States not long ago I had to transfer through Chicago O'Hare to a smaller, provincial airport. American Airlines unsurprisingly lost my luggage, but thanks to a tag it was located as being with the handlers back at Chicago. The friendly woman at the check-in desk where I'd arrived after the second flight gave me a complimentary kit that included a toothbrush, toothpaste, mini-haircomb and so on.

    The expedient service was what struck me most though; the next day a guy in a van drove up to where I stayed and dropped it off needing a signature and ID to confirm. All this was free, all of it was worked out and the lady at the desk looked astonished at me if I asked there was a fee to expedite getting my suitcase back - it contained mostly clothing that I could buy at a mall or whatever, but also a few items somewhat more important.

    AA must have yearly meetings where this baggage issue is brought up; remember that scene from Fight Club where the anti-hero played by Ed Norton opposes the cost of keeping a shoddy system with unhappy customers that might kick up an occasionally costly issue to fixing everything and performing a good service. If the good service is more expensive than paying customers off, and in the case of improving baggage loss rates it likely is, then AA keep the crappy service to the inconvience of customers.

    As cynically compelling as that movie was, this principle is applied rigorously behind closed doors in many firms who simply seek to maximize profits by definition of what they are. If it means a person losing something valuable or otherwise getting aggrieved (crashing a shoddy car and being injured), then let's cast that aside and keep the margin at an acceptable level. Unethical? Sure, but that's business.

    That airlines are now charging seperate fees for this service without presumably making a marked improvement could be harmful to them in the long term; if passengers know they're paying X for luggage carriage for every piece inclusive of the first then they can more directly demand a refund. Something which isn't quite as easy to do if its bundled in and you get chucked a cheap kit of goods to clean up that they manufacture in quantity. So this all could be a good move with respect to luggage, as it might make firms like Delta or AA or anybody else with high passenger volume improve somewhat.

  • TAXES! (Score:5, Interesting)

    by Anonymous Coward on Sunday July 18, 2010 @03:14PM (#32944320)

    Why does the government care? They now get a lower tax revenue! Before, if your ticket cost $500, they got whatever percent (let's say 10), so $50. Now if they strip down the ticket so that it's only $400, plus $100 in other fees, the government is losing $10 they would've previously received. Food, baggage, seat placement, etc, all get taxed at a lower (or non-existent) rate when they're sold separately.

  • A matter of time (Score:3, Insightful)

    by michaelmalak (91262) <michael@michaelmalak.com> on Sunday July 18, 2010 @03:14PM (#32944322) Homepage
    It will be just a matter of time before Orbitz, Travelocity, Expedia, or an upstart comes up with a "Bottom Line Price" website that takes into account the number of bags, food preferences, etc. that you input (note that they already take into account airport fees and taxes). In the meantime, the airlines are exploiting the cost of individuals to indepently acquire this information. The airlines figured out a way to re-intermediate the disintermediation that the Internet introduced. The Internet will route around this disintermediation.
  • Except the don't explain the charges well enough, and not all are optional anyway.

  • If you fly an airline that charges for checked bags, and you accidentally put a banned item in the carry-on, you either have to pay the fee to check the bag, lose the item, or mail at a high cost (if you have time). Probably this isn't a very big revenue generator, but I still find it annoying. The same goes with banning bottled water then selling it for $3 a bottle. Or setting up long security lines, then letting people through who pay a higher rate. This last one seems undemocratic. Its different tha

  • Get all the mad you want - it won't do any good. They're providing a service that you can't get anywhere else and people are paying their prices so they have no reason to change.

    Supply. Demand.

  • by antifoidulus (807088) on Sunday July 18, 2010 @03:39PM (#32944518) Homepage Journal
    Admittedly I don't fly a lot in the states(I do occasionally on business, but at least for the time being transcontinental flights have free baggage...) but it seems that the baggage fee policy more often than not causes delays due to people futzing around with the overhead bins. These bins invariably become full and then the flight attendant always comes on and announces that they will now check bags for free, which kind of defeats the whole purpose of charging for a checked bag to begin with. A lot of seasoned flyers know this and intentionally pack huge carry-ons(which almost never get weighed/measured even though the airlines could conceivably do this) because they know they will be allowed to check them for free after they get on the plane.

    By the time all this crap gets settled it's usually 30 minutes after the scheduled departure time and all the airline has done is cost themselves money and pissed a lot of people off..... brilliant!
  • by Alain Williams (2972) <addw@phcomp.co.uk> on Sunday July 18, 2010 @03:43PM (#32944550) Homepage
    They charge for everything they can - I now refuse to travel with them.

    One change that they introduced some months back [thisismoney.co.uk] was a charge on credit card use. Because they have to offer one form of card payment without charge (a UK or EU law) they chose a card that almost no one uses -- a prepaid card that costs some £15 a year and a 50p transaction charge. It is all about grabbing as much money from their customers through hard to avoid extra charges so that they can make decietful adverts claiming to be cheapest.

  • by CrAlt (3208) on Sunday July 18, 2010 @04:06PM (#32944716) Homepage Journal

    SouthWest

    Their ticket price may be a few bucks more but..
    They don't nickle and dime me.
    They don't charge to check your bag.
    They don't charge for the crappy airline food.
    They don't have assigned seating
    They are easy to deal with.
    And they seem to adapt to the times.

    You check your self in online the night before. The people who check in 1st get a lower boarding group.You print your boarding pass at home.
    When you get to the airport you hand the well staffed baggage desk your bags and check your self in on the touch screen where you have the option of reprinting your boarding pass if you lost it.

    When i get to my airport I look over at the other airlines and see 2 people trying to deal with lines a mile long. Southwest has 4 or 5 people working the check in and hardly any line.

    Southwest changes with the times and makes a profit. They seem to understand that if you make your customers happy they will keep coming back.
    Everyone else is operating the same old inefficient way..pissing people off.. and loosing money.

    • by sjbe (173966) on Monday July 19, 2010 @12:22AM (#32947366)

      Southwest changes with the times and makes a profit.

      Southwest is a company I respect and I fly with them sometimes but there is much not to like about their service too. The main thing I think they have going for them is that they have come to grips with the fact that air travel is not a luxury item anymore. It's a bus that flies - nothing more. I don't dislike Southwest but they aren't perfect by any means.

      • Southwest also doesn't fly many of the places I need to travel, especially longer routes and smaller airports. They've cherry picked their routes (and I don't blame them for it) but they often aren't an option. They only fly to 69 destinations in just 35 states.
      • You might like the lack of assigned seating but I hate it. I travel enough that early check in is often not an option, especially when on the road. I find their boarding procedure particularly obnoxious and it is designed to save cost but not to make it more convenient or more pleasant. Check in late and you'll be in a middle seat whether you like it or not.
      • Southwest's ability to make a profit has at times had more to do with their fuel hedging program than with their operational prowess. This bit them in 2008 when they lost money due oil prices moving the wrong way on them.
      • In 2008 and 2009 it came to light that SWA was not performing required inspections on their planes well beyond required deadlines. Tens of thousands of flights occurred on planes that should have been grounded. (The FAA is equally to blame here btw) I have a problem with any airline that risks safety in pursuit of cash and I don't care what the excuse is.
      • Not related to actual travel on SWA but SWA has lobbied against development of high speed rail in Texas (not shocking but not behavior I respect either)
      • SWA only operates the Boeing 737. A fine aircraft but without question not my favorite to fly in.
      • SWA in my experience doesn't handle the check in process any better than any other airline. They're usually fine but most of the other airlines are usually fine too and the length of the lines has more to do with time of day and the number of flights out of a given airport by that airline. I've had both long and short waits at many ticket counters including those of SWA. I have flown a LOT and have been on almost every decent sized carrier in the US and to/from about 40 states plus international.
      • Generally I'll look at Southwest as an option but they simply aren't flying many of the places I go.

  • Bundle my ass.... (Score:3, Interesting)

    by HockeyPuck (141947) on Sunday July 18, 2010 @05:22PM (#32945168)

    They advertise $100 tickets then you get stuck finding out there is:

    Airport Fee $10 (2x)
    Gate Fee $10 (2x)
    Drink Cart Fee $10
    Fee Summation Fee $5
    Pressurized Cabin Fee $10
    Baggage Scanning Fee $10
    Baggage Loading Fee $5
    Baggage UnLoading Fee $15
    Airplane Taxiing Priority Fee $10
    Advertising Fee
    SABRE Ticket Processing Fee $5
    Convenience for not requiring human intervention in purchasing tickets $5

    Do you really think you can fly from SF to LA for $99? No. Because the damn fees for everything. I'm waiting for those airmasks to have the following instructions on them:

    In the event of a lose of air pressure, please secure the mask to your face. Take a calm deep breath and then exhale normally so that it is replenished for the person in the seat next to you.

    Can you imagine if McDonalds did this shit?

    Ordering Fee $10
    Cooking Fee $5
    Putting paper on food tray Fee $5
    Fee Per Ketchup $1
    DriveThrough Convenience Fee $10
    Spill proof lid $10
    Straw ($2 per)
    Hot food guarantee Fee $10

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