An Airline Profit Plan

Watch out, travelers. Airlines have a new profit plan: surcharges.

Late last month, AMR's (NYSE: AMR  ) American Airlines added a "miscellaneous" surcharge of $10 each way for domestic travel on the Sunday following Thanksgiving, and the weekend of Jan. 2-3, 2010. UAL's (Nasdaq: UAUA  ) United Airlines, US Airways (NYSE: LCC  ) , and Delta Air Lines (NYSE: DAL  ) have not only copied American in imposing the surcharge, but upped the ante, adding 10 more travel dates.

Why? Sean O'Neill, editor of the Budget Travel blog, says it best:

A surcharge is a lazy way to make sure airlines rake in big bucks this year. It's easier to slap a $10 surcharge onto every ticket than doing the complex calculations needed to raise prices by various amounts on thousands of routes ($8 more on one route, $18 on another, and so forth).

Keep in mind that unlike a fee, a surcharge isn't optional or avoidable. No airline employee -- no matter how friendly -- can reduce it. Common surcharges cover fuel, airport usage, and other operating expenses. They're sort of like the city and convenience taxes levied on you when you stay at a hotel.

So even if this airline-initiated surcharge isn't technically a fee -- or, more accurately, a fare hike -- it smells like one. Southwest Airlines (NYSE: LUV  ) knows this scent all too well, which could explain why I've been seeing more of its "bags fly free" ads recently. Potential coincidence aside, a Southwest spokesman said the company doesn't "have any plans to match that holiday surcharge," and I wouldn't be surprised to see the airline capitalize on that.

Simplicity is Southwest's competitive advantage as a carrier. Yet simplicity also makes this new surcharge attractive for all of its legacy competitors. Announce it, add a few lines to advertising fine print, and then start collecting the extra revenue.

Passengers won't like this profit plan. I can't blame them; a fare increase is still a fare increase, whatever the carriers call it. Yet this surcharge may be the most effective earnings-booster we've seen in years.

Taxi toward related Foolishness:

Fool contributor Tim Beyers is a member of the market-beating Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy asks that you please stow your tray tables for takeoff.


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  • Report this Comment On October 07, 2009, at 3:30 AM, raju3864 wrote:

    Surcharges have become an obnoxious way to hide actual prices. For example, in India, the airline surcharges often exceed the base ticket prices!!

    Even governments try to tack a surcharge or cess on taxes!

  • Report this Comment On October 07, 2009, at 11:45 AM, cocacolakidcp wrote:

    Just another reason to avoid the airlines. One is treated like a terrorist before one gets near the plane, is packed in like cattle with surley pasengers, screaming babies, and an overworked crew. God forbid they shoud lose your luggage. The airlines charge an arm and a leg to feed you a pittance.

    Rail is a much more pleasant way to travel, if one has the time. You eat well, and have a nice view of the country. I don't fear flying, it's just no fun.

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