Airlines Get Billions From Unbundled Services 432
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."
2+2=5 (Score:5, Informative)
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.
Air travel is making a comeback, but... (Score:5, Informative)
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]
Re:I like it (Score:5, Informative)
But they DID lower prices. A quick search shows this. Last year, Southwest was the cheapest to Vegas. Now, Delta and others are $100 or so cheaper. Add in the bag charges and it's back to where it was when I flew last year.
Southwest (Score:5, Informative)
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:So who's to the rescue? (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:You're not flying cheaper! (Score:3, Informative)
Actually, if he's 2+ meters he could be close to underweight at 90.7 kg (200 lbs). Factor in a large frame (no, not the "I'm big boned" excuse, some people really do have a larger frame than others) and being in good shape (meaning high percentage of bodyweight as muscles and low percentage of bodyweight as fat) then 90.7 kg could very well be considered slender at anything over 1.9 meters. Hell, I have a friend who's just under 1.8 meters who looks skinny at around 90 kg but he's also very fit which means he weighs more per unit of volume than someone who's got little muscle and a lot of fat.
Re:I like it (Score:3, Informative)
But they did not lower the prices
Cite?
I fly about six times per year and in almost all cases the base fares are lower than they were ten years ago (indexed to today's dollars).
Ryan air - the king of this sort of scam (Score:4, Informative)
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.
Re:You're not flying cheaper! (Score:1, Informative)
Re:You're not flying cheaper! (Score:5, Informative)
It's disriminatory? It's like saying Walmart charging you biggies $1-2 on large clothing sizes (they do) because they use more material. For the airlines, more weight = more fuel burnt. I bet you have a bigger food bill than a 120 lb person as well, who are you going to cry discrimination there?
It's not discrimination. It's reality.
Re:I like it (Score:4, Informative)
but fares over the Atlantic are much higher
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 $1400 today - Almost $150 less.
In the mid 70s my parents flew the family to England to visit the relatives. My parents had to take out a bank loan to cover the airfares - They were that high.
Now they fly to England twice a year without thinking about it.
Historically, TATL fares have never been lower.
Re:Unbundling without choice (Score:4, Informative)
I'll grant that the assumption of "free, competitive marketplace" is too often made regarding various industries where the assumption is not justified, but airline industry isn't one of them.
The one thing, competitiveness of a market depends on most is what is called "barrier to entry", which can be various things, from laws/regulations enacted by congress, monopoly granted by various levels of government, start-up capital costs, customers' switching costs, etc. With no barrier to entry, any excess profit will be fleeting, as profit opportunity will attract competition, lowering prices and, essentially, removing the profit. With airline industries, there is no government-enforced monopoly, and most flyers have minimal switching costs (perhaps loss of points in loyalty programs).
While one could argue that there is never a completely free, competitive market, I would say airline industry comes close enough. I propose two measures of whether a market is competitive: number of competitors (high is competitive), and the profit margin in the industry (low means competitive). By these two measures, airline industry is competitive. Given any route, as long as you don't impose arbitrary requirements as your sibling poster has done (why must you fly direct? And really, can't you fly to nearby airports in the same area, rather than insisting connecting only two specific airports?), at least 3 or 4 airlines will be competing for your money.
In fact, people (especially those who cheered on the recent United-Continental merger) say there is too much competition in the airline industry, which led to airlines having a reputation of being a terrible industry to own in your stock portfolio (the only airline ETF, FAA, is specifically designed for speculative purpose, not investing).
So, reality supports my (implicit) claim that airline industry is "free, competitive marketplace". What reality do you live in?
Re:Southwest (Score:3, Informative)
SWA is not more pleasant to fly (Score:4, Informative)
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.
Generally I'll look at Southwest as an option but they simply aren't flying many of the places I go.
Re:I like it (Score:4, Informative)
You don't do much travel in Europe then do you?
Ryan air, takes unbundling and hidden costs to a new level, even charging as much as 40 Euros to "print" your ticket for you if you didn't print it at home. And then the flight is like one long advertisement from the moment you take off until you land, only allowing 1 carry on of any type (not the usual Carry on + personal item (purse/laptop/brief case etc...)
EasyJet, Wizz Air, and German Wings, while slightly better aren't much better. And the big name brands aren't all that far off either.