"Airline profits are soaring -- but it's not good news for consumers." That was the headline on Fortune magazine this past summer, and truer words were never spoken.
Although the final results aren't in yet, by mid-year Fortune was already projecting that 2015 would be a record year for the global air travel industry, with profits topping $29 billion. Unfortunately, Fortune also cautioned that "just because the airline you're flying is making more money doesn't mean you'll have a better flight," adding, "In many cases, you should expect the exact opposite."
A lot of the blame for this can be chalked up to the ever increasing array of "nickel-and-dime" fees that airliners charge for services that used to be included in the price of a simple ticket. Fees that generally cost a whole lot more than a nickel or a dime. In today's roundtable, we've rounded up three of our experts to preview the next wave of profitable fee surcharges that air travelers should prepare for.
Sean Williams: A few years prior it would have been uncommon for your airline to charge you for requesting a specific seat, such as an aisle, window, or seat toward the front of the plane. Today, though, far more airlines charge their passengers for this convenience of choice, and I suspect it's only going to get more prevalent as time passes and airlines look for ways to pad their margins.
Charging for seat preference might be the easiest of all add-on fees for the airline industry because it requires virtually no investment whatsoever. Most airlines have upgraded their check-in process to be done at a kiosk, eliminating the costly use of an airline employee. Simply adding in an option within the check-in process for the consumer to choose whether or not they'd like to pay to select their seat could result in a big payday for airlines. It's an easy way to generate pure profits.
For example, bare-bones airline Spirit Airlines (NYSE:SAVE) charges its customers anywhere from $1 to as much as $50 for the selection of their regular priced seats. If you want a larger seat, you'll pay anywhere from $12 to as much as $199 in advance. There are also onboard upgrades available on Spirit Airlines' flights that'll set you back $25 to $75. It's still free, though, to let Spirit Airlines choose your seat for you, but if you don't like running the risk of sitting in between passengers, this is a risk you may not want to take.
Other airlines have also taken to charging customers for the "luxury" of early boarding. With many popular flights sold out, overhead baggage space can be scarce. Boarding early ensures you'll be near your carry-on bag upon arrival and you'll be comfortably in place before everyone else.
One popular airline still bucking these trends is Alaska Air (NYSE:ALK). Alaska is one of the remaining airlines not to charge a boarding or seat selection fee, which probably contributes to its high satisfaction ratings. Of course, Alaska will still get consumers for checked bag fees and a $125 ticket-change fee should you need to change your flight. Overall, though, Alaska comes out looking like one of the few "good guys" left in a sea of rampant fees.
Rich Smith: Charging travelers for carry-on luggage isn't a popular idea in the airline industry today -- but it could become so.
Currently, none of the major -- what we used to call "legacy" -- airlines such as American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), or United Airlines (NASDAQ:UAL) charge customers for carry-ons. At least not for one carry-on. American, Delta, and Unitedcurrently rank Nos. 1, 2, and 3, respectively, in the U.S. in terms of traffic, and all permit passengers to board with their first carry-on free.
Not so with the discount carriers. According to website Farecompare.com, two low-price airlines have already pioneered the charging of fees for carry-ons. Spirit Airlines, which Sean has already highlighted as a nickel-and-dimer, charges anywhere from $20 to $100 for a piece of carry-on luggage. Frontier Airlines charges anywhere from $35 to $60 to carry on. That's more than the $30 to $40 Frontier charges to check an ordinary-size suitcase. It's way more than American Airlines, Delta, or United charge for your first piece of checked luggage. (Moving in lockstep, each charges $25 in lockstep for this privilege).
Now mind you, charging for carry-ons isn't entirely bad news. Yes, those fees plump these airlines' profits (privately owned Frontier doesn't have to tell us how much it makes from fees, but Spirit's profits surged 45% last quarter). But I recently flew Frontier myself, and I can testify -- high carry-on fees tend to discourage flyers from carrying on luggage. As a result, there's always plenty of space in the bins for those who do carry on.
Generally speaking, this makes the boarding and seating process run a whole lot smoother on Frontier, than on airlines where every passenger is competing to cram their fee-free carry-ons into the bins.
Dan Caplinger: One of the most offensive revenue generators that airlines have ever proposed is a fee to use airplane bathrooms. European airline Ryanair pioneered the idea, initially suggesting a charge of one British pound or one euro to use the facilities onboard its aircraft. Although Ryanair ended up dropping its plan to charge for onboard toilets, some have feared that other airlines might pick up on the proposal.
To prevent pay toilets from becoming a reality on U.S. airlines, a recent House bill proposed to prohibit airlines from charging fees for bathrooms on flights. Rep. Dan Lipinski (D-Ill.) argued that with the number of new charges for items that used to be free on airline flights, including drinks, snacks, and baggage handling, explicitly preventing airlines from adding bathroom usage to the list is an essential part of ensuring that passengers have at least some basic rights when they travel. In addition, as proposed, the bill would allow passengers to request transfer to another flight if a plane didn't have adequate functioning lavatories on board. Whether the measure will pass is unclear, but given the proliferation of fees in recent years, many travelers will appreciate putting at least some limits on what you'll have to pay for in the air.
Pick your battles
Now that you know where the next round of airline fees is coming from -- and from whom -- you're in a better position to decide: Are the low ticket prices on discount airlines worth it? Are you willing to pay the occasional irksome fee to get a lower ticket price?
If not, then the choice is clear: You can still buy the discount airplane stocks and profit from their fee policies. Just make sure to do your own flying with someone else.
Dan Caplinger has no position in any stocks mentioned. Rich Smith has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. The Motley Fool has the following options: long January 2017 $35 calls on American Airlines Group. The Motley Fool recommends Spirit Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.