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.
Published or updated March 23, 2011.