As featured in The Wall Street Journal, Money Magazine, and more!
     

Why Airlines Continue to Add Fees

This article was written by in Travel. 13 comments.


I don’t like the fact that when I think I know how much it will cost me to travel round-trip from where I live to where some of my family lives, New Jersey to California, there always seems to be new fees I hadn’t considered. I’ve managed to eliminate most of these extra fees by using an airline rewards credit card, at least when I fly using the one particular airline that has historically offered the route I want for the best fare. For other trips, other airlines may offer better rates, even when taking fees into account. Airlines try to bring down fares so they can easily compete on fare comparison sites, except for those airlines who refuse to offer their rates on comparison sites because they might not be able to compete at that level.

There is a public conception that most airlines and most flights are generally the same, so shopping for the lowest price often makes sense. On the one hand, airlines are attempting to differentiate themselves while on the other hand, they are adding these fees to cover what they’re losing when lowering the fares to compete. Even the Air Transport Association admits that airlines are still making a profit on airfare alone. An article in Fortune offers a breakdown of where each cent of your airfare goes.

The study uses a transcontinental flight, from Los Angeles to New York with one layover, as an example. The average fare of this type of travel is priced at $506.62. 6.6% of that amount is profit, while the rest is reserved for taxes, fuel, labor, equipment, and other costs. Since most of these other costs are fixed, increase in fuel prices will cut into profits. The loss of profit is a strong motivator for companies to add fees, even if that loss is only theoretical. We see it with credit card or debit card issuers who may see future profits limited in one area and compensate by adding fees in another area.

Although the data might be a little old at this point, a household survey in 2001 indicated that air travel is roughly evenly split between business and personal types of travel. Business travel is interesting because price is often not a factor. Companies, particularly large corporations that do business nationally or internationally, are willing to reimburse or pay for travel expenses when it means the possibility of earning more money for the company. Employees don’t balk at fees — or even high prices, to an extent — if they know the company will be paying for their travel. Roughly half of all flyers, if the 2001 statistics are to be believed, are immune to the effects of price changes through fees. This immunity allows airlines to increase fees, and in some cases, provide lackluster customer support, because the industry knows that half of its customers will continue to fly regardless of their satisfaction.

Fortune, Bureau of Transportation Statistics

Published or updated March 23, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,495
Rank: Platinum
About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar DonnaFreedman ♦85 (Newbie)

Recently I flew to the U.K. on a Seattle-Heathrow fare advertised as $613. By the time all the fees were added, it cost $835.90. Ouch.
When I looked at the cost breakdown, it was: Airfare, $413; everything else, $434.90. That’s just depressing.

Reply to this comment

avatar Steve

I would come to the opposite conclusion as you about business travelers. Since they don’t care about the cost, the only way for an airline to differentiate themselves is with superior service.

Reply to this comment

avatar Luke Landes ♦127,495 (Platinum)

That is likely the reason that airlines work very hard to cater to business travelers. Business travelers are more likely to buy fares above economy pricing, and unlike the average fare in the example, First Class or Business Class fares offer significantly higher profit margins (and pay for business service expenses like lounges).

Reply to this comment

avatar Ceecee ♦53 (Newbie)

I think that for a trip of 8 hours or less, it’s better to drive or take the train. If we continue to fly no matter what fees are tacked on, they’ll keep tacking them on. I believe it was Dr. Phil who said, “We teach people how to treat us.” We are teaching them that fees are okay with us.

Reply to this comment

avatar wylerassociate ♦162 (Cent)

personal travelers are at the mercy of the airline industry because you don’t choose US Airways (worst airline ever) they choose you. Didn’t congress pass some type of passenger bill of rights to protect passengers when it comes to fees?

Reply to this comment

avatar rewards ♦31 (Newbie)

For me, reliable departure time is the number one differentiator. With Southwest, I like their approach to motivating both passengers to arrive on time (by not assigning seats) and airports to minimize hassles (by flying out of airports that allow quick turn around times).

Reply to this comment

avatar shellye ♦107 (Cent)

As gas prices continue to rise, the airlines will have no choice but to raise prices, too. But rather than simply raise the airfare, they will create more worthless junk fees and attach to the price of a ticket. It’s like the saying about lipstick and a pig. Call it what you want; a raise in price is still a raise in price, no matter what kind of “fee” you impose.

Reply to this comment

avatar skylog ♦368 (Nickel)

this brings up another related problem. not only the price of fuel, but with everything in general the airlines are struggling financially. i have seen a few pieces and read several reports regarding how many pilots are so drastically having their pay cut that many are having trouble making ends meet. this, in turn, means they are taking more flights, living more stressed lives, and in many documented cases, making poor decsions on the job as a result. i know flying is statistically safer than driving, but this is a trend that has me worried.

Reply to this comment

avatar DonnaFreedman ♦85 (Newbie)

I’ve noticed more upsells, too: Do you want to sit in a bulkhead seat with more legroom? Do you want more than a few choices for movies/TV shows? Do you want to get on the plane first? Pay up.
None of those things affect me personally. But if people are willing to pay those upcharges, then the airlines will keep imposing them.

Reply to this comment

avatar faithfueledbennetts ♦264 (Nickel)

The airlines are right, we will keep flying. Time is valuable. If I can fly somewhere and pay a little more than what I would to drive in gas money, the time cut by flying makes it all worth the while.

Reply to this comment

avatar Cejay ♦1,521 (Half-Dollar)

We only fly when there is no possible way to drive within our set vacation time. I really, really hate to pay those fees. Not the cost to fly since that is a miniscule amount of the total bill but the surcharges that are rising all the time. And then I see people buy the $6.00 sandwich. I just throw a few snack in my bag and I am good to go.

Reply to this comment

avatar tigernicole86 ♦55 (Newbie)

I don’t like to fly and if I’m only going about 400 miles away, then I fly. Even with gas going up to $4/gallon, it’s still worth it for me just to take the extra time to drive and usually it takes about as long with going through security and nobody has to give me a patdown!

Reply to this comment

avatar BrerScientist

I don’t know how it works in the private sector, but when I fly for work (a public university), the only optional fee they will reimburse is checked bag fees. If I want a better seat, food on the plane, or other amenities that used to be offered for free, I have to pay for it myself. So these things are not always being picked up by businesses. I do have some flexibility to trade off better schedules vs price. Its worth $50 to me (and my budget) to save an hour on a cross-country trip.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: