There are few things in this world as universally disliked as the airline sector. In 2012, for instance, four of the 15 most-hated companies in America were airlines, according to the American Customer Satisfaction Index's annual report.
However, airlines also provide a basic need that simply can't be accomplished by car -- in essence, the ability to travel long distances in a short amount of time. Because of the capital-intensive nature of the business, and given that there aren't many different airlines to choose from, their pricing power and the perception that they're nickel and diming consumers along the way is only further enhanced.
That's why today I propose to take a look at the true "fee offenders" in the industry; the progenitors of my so-called "five most outrageous airline fees." If this sounds familiar, it's because I offered up my 10 Most Outlandish Airline Fees That Airlines Charge two years ago -- but things have changed quite a bit since then.
In no particular order, the five most outrageous fees in the airline sector are:
Pick your seat: up to $80
Want to choose where you'll sit on the airplane? The good news is that of the 14 major and regional carriers serving the U.S., only five will charge you to select your seat. The cream of the crop, however, is low-cost airline Allegiant Travel (NASDAQ:ALGT), which will hit you with an additional charge of up to $80 if you select your own seat at the time of reservation. In some instances, the cost of selecting your seat could prove nearly as costly as your ticket!
Book your reservation at the airport: $35 (domestic) / $45 (international)
It's no secret that airlines these days would prefer to streamline your booking through their online portal as it means no added costs of tying up one of their representatives. However, if you crave person-to-person booking, either over the phone or at the airport with an airline representative, you may have to pay. With the exception of Frontier, Southwest Airlines (NYSE:LUV), and Air Canada, all 11 other airlines have some form of phone-in or counter booking fee. Yet no airline trumps the fee charged by US Airways, part of the American Airlines Group (NASDAQ:AAL), which will set prospective passengers back $35 on a domestic flight and $45 on an international flight for simply booking with a travel representative at the airport.
Change your ticket: up to $450
Unless you happen to fly with Southwest Airlines, which won't charge you a ticket change fee, the remaining 13 airlines will all ask you to open up your wallet to accommodate your ticket change request. The majority of ticket change fees range from $75 to $200, give or take a few dollars in each direction and dependent on whether you change your ticket for the same day. But if you fly with Delta Air Lines (NYSE:DAL) you'll need to stretch your wallet especially wide, because ticket changes for economy class fliers will run anywhere from $150 to as much as $450! According to Delta's optional fees and services website, same-day economy class flight changes "only" run $50.
Carry-on luggage: up to $100
Perhaps no fee irks fliers more than baggage fees. Many airlines were coerced into charging baggage fees because ticket prices alone weren't paying the bills when jet fuel costs were soaring in the late 2000s. Over the past few years some airlines have chosen to extend baggage fees beyond just what you pick up on the carousel to include the bag you bring into the cabin of the airplane. Thankfully for the consumer, only three airlines currently charge a carry-on fee: Frontier, Allegiant, and the king of the carry-on fee mountain, Spirit Airlines (NYSE:SAVE).
With Spirit, everything depends on how you pay for your carry-on baggage. If you're part of the $9 Fare Club, then you'll only pay $26 for a carry-on bag when purchased before online check-in. If you're not a member and you wait to pay until online check-in, or you choose to check in with an airline representative, you'll fork over $45 or $50. Should you wait until you're at the gate to pay for your carry-on bag it'll cost you a clean $100!
Third and fourth checked bag: $150 + $200
With the exception of JetBlue, which allows fliers one free checked bag, and Southwest Airlines, where the first two checked bags fly free, all other airlines charge some fee for each bag you check in. Where things tend to get really dicey, and spendy, is once you hit that third or fourth checked bag. Virgin America is by far the most reasonable at just $25 per checked bag regardless of how many you check. At the other end of the scale is US Airways, once again.
According to US Airways, domestic passengers will pay $150 for a third checked bag and $200 for each additional bag. Combined, that's $350 for the third and fourth bag. By comparison, nine out the 14 major and regional airlines in the U.S. would charge $200 or less combined for a third and fourth checked bag.
A necessary evil
Passengers may not appreciate the fees that airlines charge, but they've become a necessity if airlines are to survive over the long term. What airline investors should understand is that many of these fees are merely focused on pushing consumers toward lower-cost solutions, such as booking and checking in online as opposed to with a representative, which would cost more. Either an airline saves on expenses because consumers are using online portals to book a reservation, or it collects high-margin optional fees that are occasionally even collected by point-of-sale machines and not even human representatives, further boosting the boost to airline margins. In other words, don't expect the mountain of fees to slow down any time soon, and do expect airline margins to improve as long as the low-cost/optional fare model continues to work.
Do you have any guess what optional fee might be coming down the pipeline next for airlines? Share it in the comments section below.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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