Is This Outlandish Airline Fee a Game-Changer?

To say that airline fees are getting out of hand could be quite the understatement. Last year I chronicled 10 of the most outlandish fees that airlines charge, ranging from a $450 overweight international baggage fee for American Airlines, to Hawaiian Airlines, which will charge $175 just to bring your pet on board.

The comforting fact about many of these charges, if there is one, is that they're usually optional. You don't have to buy a $3 bottle of water from Spirit Airlines (NASDAQ: SAVE  ) or pay $17 to $25 for a pillow and blanket from Allegiant Travel (NASDAQ: ALGT  ) if you don't want to -- and they're often confined to a single airline. However, one charge is slowly infiltrating the sector that may soon become commonplace and promises to be a game-changer -- namely, the carry-on baggage fee.


Source: Commons.wikimedia.org. 

Charrrrrrrrrge!
Spirit Airlines began charging customers for carry-on bags in 2010 as part of its campaign to undercut regional and national carriers with ultra-low ticket prices and allow consumers to add optional items at their discretion (baggage, carry-on baggage, food and drinks, etc.) to drive its margins. Spirit learned quickly that these ancillary fees, which it typically discounts if they're booked online, or in some cases even at the airport's point-of-sale machines, rarely require a physical airline representative for collection purposes, making them beefy margin boosters. Spirit later upped its carry-on fee to as much as $100 for customers who wait to check their bag at the gate.

Allegiant followed suit in April of last year, announcing a plan to charge $30 for carry-on bags that were booked online, and also adding a surcharge for bags booked at the airport.

On Wednesday, Republic Airways (NASDAQ: RJET  ) -owned Frontier Airlines announced that it, too, plans to join the carry-on-bag-charging club. However, Frontier's carry-on baggage charge, which will range from $25 to $100, is unique in that it doesn't slap every customer with the charge as Spirit and Allegiant currently do. Instead, carry-on bags will remain free for customers who book their flights through Frontier, but an added charge will apply for customers who book their flight through third-party websites such as Expedia (NASDAQ: EXPE  ) and Orbitz (NYSE: OWW  ) which typically offer cheaper flight prices than what you'll find on airline companies' websites.


Source: Commons.wikimedia.org. 

"A whole different animal"
Frontier's move is groundbreaking for two particular reasons.

First, it adds yet another airline to those charging for carry-on bags. Spirit and Allegiant are writing the book on utilizing high-margin optional fees to drive bottom-line growth, and other regional airlines appear likely to catch onto this growth-driver. Either that or they will simply be left behind.

Second, it could put third-party booking sites in a bind. The advantage of third-party sites such as Expedia and Orbitz is that they usually undercut airlines' website ticket prices and allow users to bundle their flight with other items like a car and hotel to maximize their savings. However, if airlines suddenly begin penalizing passengers who purchase their ticket through these third-party websites by imposing carry-on baggage fees, if the math makes sense, they'll simply make their purchase via the airlines' website.

But before you panic ...
If you're suddenly frantic to click the "sell" button on third-party travel sites, consider this point: While airline tickets make up a big chunk of travel sites' gross bookings, it's hotels that provide the biggest margin boost. Since competition among airlines is fiercely competitive, and most airline websites are introducing travel prices that are somewhat competitive with Expedia and Orbitz, margins tend to be low in airline bookings. Third-party travel sites make the bulk of their profits from hotel bookings, which are far less transparent to consumers, making it easier for them to charge a premium. This move may actually have less bearing on the third-party booking sector than you might think.

For airlines, though, it could have a big benefit. As I said, these fees are almost pure profit with little need to add representatives for collection purposes. Don't be surprised if you see a wider adoption of carry-on baggage fees -- at least in the sense of being directed at customers making purchases through third-party websites -- by regional airlines in the coming year.

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Read/Post Comments (11) | Recommend This Article (8)

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  • Report this Comment On May 05, 2013, at 12:40 PM, jw906 wrote:

    Are these fees crazy and unreasonable? Yes, at first glance. However, these airlines are only giving customers what they have been demanding. The US consumer has been demanding one thing. That is the desire for a cheap ticket. Everyone talks about the price they pay to fly from A to B. I got my ticket for XX dollars, not bad they say. Generally, roundtrip airfares for trip segments of 1000 miles are measured in a few hundred dollars. I often ask, can you drive your vehicle 1000 miles for the same price given today's fuel prices. The answer is generally NO. So to provide a cheap ticket the product served has had to become unbundled. The airlines have now had to find other revenue streams to replace those lost while the airfares have dropped and cost (fuel) has risen. This article points out the fee to bring a pet inside the cabin of a jet. Hawaiian Airlines reported charges a $175 fee. This seems reasonable. Many hotels charge extra for pets, so why would it be unreasonable for an airline to charge for this service provided. Bottled water is another item that is often charged for. How many businesses do you frequent that hand you a free bottle of water? Not many my friends and if you do you are likely getting charged for it as part of the fee for the good or service provided. When you arrive at the hotel, is the vending machine filled with pop free? The snacks in the mini-bar? Bottom line, the airline industry is a tough business. Regulations, fuel, employee costs, and to cost to purchase the aircraft are staggering. The margin in the business is extremely low. Domestic air travel has gone the way of Wal-Mart. Not that Wal-Mart is bad, it fits a niche that consumers desire and that is cheap goods and services. If you want Macy's then break out those wallets and buy a ticket on an overseas air carrier. Generally, those customers are competed for on amenities and service, but not price. Bottom line, we can't have it both ways America.

  • Report this Comment On May 06, 2013, at 2:36 PM, Doozytoo wrote:

    The fee for carry-on is just a dumb move. It creates customer hate and discontent. The airlines would be better served if they just reflected the proper price in the ticket...

  • Report this Comment On May 07, 2013, at 4:40 PM, gskinner75006 wrote:

    You should be charged based on the physical and dimensional weight that is being flown over a given distance. Any fees (or perks) would then be for additional services. i.e. drinks, food, movies, etc...

  • Report this Comment On May 07, 2013, at 5:13 PM, scaryjoe10 wrote:

    I have yet to find the price of a ticket on expedia is cheaper that the airline web sight. they are always the same. this writer is crazy.

  • Report this Comment On May 07, 2013, at 6:23 PM, Risky88 wrote:

    Yet the airlines do not understand why they are the segment of so much...discomfort or say, terrible reviews.

  • Report this Comment On May 07, 2013, at 6:31 PM, user5701 wrote:

    Fight the power, don't check or carry on anything! Hmm, then again, if you brought nothing with you on an airplane, you may get the wrong kind of attention...

    Guess consumers can't win either way. Here [Name of Airline] take my money...

  • Report this Comment On May 07, 2013, at 6:45 PM, ballengerm wrote:

    I'd like to see a some historical data on average inflation-adjusted domestic airline ticket price per mile with fuel costs subtracted. I'd wager that it has decreased substantially over the past few decades.

    I agree with jw906. All the airlines are doing is responding to the public's demonstration of their cheerful willingness (when measured by actions, not words) to endure almost any level of discomfort to achieve a lower upfront ticket price.

  • Report this Comment On May 08, 2013, at 2:29 AM, eightballfreight wrote:

    The author seems to be confused on what a regional airline is so I'm not even going to address how the "super" regionals will not be able to unilaterally impose this without mainline as well.

    It is no secret, BB's purchase of Frontier a couple of years ago was a mistake. He has been trying to off load it ever since because of his poor management combined with SWA's growing DEN domination. I'd bet this is a short term ploy to up the revenue and have a blind buyer walk in while the DEN populous just "wants to get away". The CEO gets a failing grade. Stay away from RJET.

  • Report this Comment On May 08, 2013, at 2:59 AM, sliderw wrote:

    Charge us for how much air we breathe in flight.

  • Report this Comment On May 08, 2013, at 9:20 AM, BMFPitt wrote:

    "Last year I chronicled 10 of the most outlandish fees that airlines charge...Hawaiian Airlines, which will charge $175 just to bring your pet on board."

    Too low?

  • Report this Comment On May 08, 2013, at 10:24 AM, TMFLomax wrote:

    I don't travel much, but one thing I will say is that charging a fee to check luggage may result in an unintended consequence: the irritating delays that result from people messing around and wasting everybody's time trying to stuff their luggage into the overheads and then trying to get them back out of the jigsaw puzzle nightmare when the plane lands. Delays are bad enough. What about the people rushing to catch a connecting flight? They usually have to stand there and wait for everybody in front of them to mess around.

    I check my bags and usually have two carry-ons that I stuff under the seat in front of me. I think people who are willing to be more conscientious and check their bags should actually be treated better, not worse. And should be let off the plane first so they don't have to stand there while people mess around.

    Just my two cents -- obviously I find the fee annoying and the insane amount of luggage in overheads because people don't want to pay $25 extra a stupid move. (Meanwhile, theoretically somebody could get hurt by getting hit in the head by someone trying to swing a heavy suitcase out of the overheads... just sayin'.)

    Just traveled recently and didn't even get a tiny bag of pretzels. Obviously I didn't have a very good experience given delays, too. (US Airways, ahem. ;))

    ;)

    Alyce

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