Tuesday, November 29, 2011

One other point about the lunacy of checked baggage fees

Portfolio.com wrote a rather insightful article in 2009 about the truth in charging airline baggage fees>>>

Here's an indisputable fact: During the second quarter of the year, the nation's largest airlines collected $669.5 million worth of baggage fees from the nation's hapless passengers. That's an attention-grabbing 275 percent increase from the second quarter of 2008.
But here's an indisputable truth: The more baggage fees that the big airlines pile on their customers, the faster their overall revenue is collapsing. In fact, the only carriers that escaped a double-digit revenue decline in the second quarter were the two that still allow all passengers to check at least one bag for free.

That you heard about the indisputable fact last week from airline executives, self-important industry analysts, and the myopic general media but weren't told about the indisputable truth is an indication of exactly how badly business travelers are served these days. Not only are the big airlines flying blindly toward a fiscal precipice, their supposed watchdogs are blithely going along for the ride.

"Baggage fees are the kind of shortsighted things that are killing us," the top U.S. executive of a European airline told me recently. "The accountants we have are great at tracking the 'ancillary' revenue we generate whenever we invent something like a baggage charge. But they have absolutely no way to match that against our potential overall revenue exposure if travelers book away from us. 
And no one holds them accountable for their one-way accounting. It's a scandal."

"Scandal" may be a little strong, but there's no arguing this airline executive's basic point. Ever since airlines began hiving off traditional services like in-flight meals, seat assignments, and checked baggage from the basic airfare, the carriers have carefully tracked the growth of this secondary revenue. But they never correlate it against their overall revenue picture. And U.S. legacy carriers have studiously ignored the fact that Southwest and JetBlue, which generally avoid what is now called as a la carte pricing, have gained market share, won the most customer kudos, and, not coincidentally, been the most consistently profitable.

.Consider the odd, but entirely trackable, evolution of baggage fees. For decades, most carriers on domestic routes permitted customers to check at least two bags free. That changed during the first quarter of 2008, when United Airlines introduced a $25 fee for most coach passengers checking a second bag. The other legacy carriers—American, Continental, US Airways, and the now-merged Delta and Northwest—quickly matched. By 2008’s second quarter, American Airlines announced a $15 fee for checking the first bag. That fee was quickly matched too, not only by the legacy lines, but also by smaller carriers such as Alaska Airlines and AirTran Airways. The only holdouts: Southwest Airlines, which has clung tenaciously to its two-free-bags policy, and JetBlue Airways, which still permits all passengers one gratis checked bag.

By the time the airlines had released their 2009 first-quarter results, a pattern was obvious: The carriers that had most quickly embraced checked-bag fees had suffered a massive decline in revenue, anywhere from 9 to 21 percent compared with the first quarter of 2008. As I reported contemporaneously on my own website, the airlines that didn't ding customers for bag fees had much more modest declines. The pattern was there for anyone to see

Read more: http://www.portfolio.com/views/columns/seat-2B/2009/09/29/baggage-fees-hurting-airlines-bottom-line/#ixzz1f9eggcvq

The Airline That Originated The Baggage Fee Files Bankruptcy

We have been blogging for awhile about the lunacy of airline baggage fee.  By now you have read about the bankruptcy filing of American Airlines.   American Airlines was the first major airline to impose a fee on the first bag checked. 

We now turn to the way back machine to discover why the airlines turned to this most anti passenger nickle and dime business model.   

The LA Times reported in May 2008>>>>>

Starting June 15 most American passengers must pay $15 for checking a single bag. That comes on top of the airline's decision two weeks ago to charge $25 for a second bag.
American, the largest carrier at Los Angeles International Airport, said it was compelled to take the actions in what it called an "extraordinary" environment.

Other airlines are expected to take additional steps to fight the twin curses of rising oil prices and a weak economy, increasing prospects for higher fares and crowded planes as the busy summer travel season kicks into gear with the upcoming Memorial Day weekend.

Already, domestic airfares for summer travel are up 20% compared with a year ago, according to Farecast.com, an online travel search service. American said rising oil prices had increased its expected annual fuel costs by nearly $3 billion since the start of the year.

"There is no sugar-coating the fact we are facing an extraordinarily difficult economic environment," Gerard Arpey, the just fired on November 29, 2011 chief executive of American's parent, AMR Corp., said during a conference call with reporters Wednesday. "The industry cannot continue in the current state."

The fee is the first imposed by a major airline for checking in the first bag, a service that has previously been included in the price of the ticket. The fee does not apply to "elite" level frequent-flier club members, those paying full fare and some others.

The airline began charging $25 for a second checked bag earlier this month, and has imposed even higher charges for additional luggage. The airline said it also would raise fees for services including reservation help and the handling of oversized bags.

The moves to generate new revenue came on the heels of another record-breaking day in the petroleum market and raised the prospect of another round of airline bankruptcies if oil prices continued to rise unabated.

The Elliot.org website reveals the paniful truth about airlines and their baggage fees. 

For the last few years, the airline industry has made a variety of dishonest claims related to fees. First, it said it was adding a surcharge for the first checked bag to cover higher fuel costs, but when fuel prices dropped, it kept the fee. It also said that by unbundling prices, it wanted to give customers more “options” and lower fares. Problem is, they never actually lowered fares when they added fees for services that used to be included in the ticket price. They just started charging more for something that used to be included in the ticket price.

That upsets some passengers.

“It leaves such a bad taste in my mouth,” says Diane Olivier, who recently paid more than $60 to get seat assignments on a British Airways flight. “One assumes when you are paying over $1,600 for a ticket and you book early it comes with a seat of your choice.”

The second problem is the way in which these extras are revealed. Airlines routinely broadside their customers with fees, either informing them of the extras immediately after their ticket purchase or when they arrive at the airport.

When Mayer Nudell recently tried to check his bag curbside in Long Beach, Calif., for example, he was told there’d be a fee for the privilege. Had his airline, JetBlue, bothered to tell him about the surcharge? No. “I discovered it at the airport,” he says.

Of course, Nudell could have said “no” and checked his luggage at the ticket counter. But others aren’t so fortunate. They find they must either pay hundreds of dollars for their bags or abandon their personal belongings at the airport. And they feel the airline has them over a barrel.