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Airlines test flier limits with ever-growing fees

Hamstrung by the recession, most airlines are ramping up passenger fees for services once considered part of the ticket price. So far, fliers have not revolted.
Image: Economic Downturn Causes Drop In Thanksgiving Travel, AAA Reports
For fliers, paying for everything from bag checking to a bag of chips can be an aggravating wallet-buster.Justin Sullivan / Getty Images

This is the conundrum airlines face as they head into the busy holiday season: How many previously free services can they force fliers to pay for without risking a revolt?

For most airlines, cash-strapped in recent years by a series of crises dating back to the 9/11 terrorist attacks in 2001, the growth in fees represents one of a very few potential bright spots.

But for fliers racked by the deep recession, paying for everything from checked luggage to a bag of chips on board can quickly become an aggravating wallet-buster.

“It’s very much a balance of what customers are asking for, in terms of entertainment, and what we need to do in terms of sustaining the airline,” said Paul Skrbec, spokesman for Delta Air Lines, the nation’s largest carrier since its merger with Northwest last year.

The push for new fees comes as many airlines continue to report deep losses and problems attracting fliers. The Air Transport Association of America said Monday that passenger revenue for U.S. airlines fell 21 percent in August as compared to a year earlier as passenger traffic fell 6 percent.

Hamstrung by high fuel prices, reduced customer demand and, most recently, the effect of swine flu on travel patterns, most major airlines are now charging passengers for services once considered part of the ticket price. In addition to meals, snacks and checked bags, depending on the airline customers might be charged for selecting a seat, booking a flight by phone, watching a movie or using a pillow, blanket or headset.

Other services that once might have commanded a small fee, if any, now might come with a considerable price tag. This category includes traveling with a pet, sending a child on a flight solo or transporting unwieldy gear.

For the frequent business traveler or family on vacation, the fees can easily add up to hundreds of extra dollars. For airlines, they are translating into millions of dollars in much-needed revenue.

Delta, for example, said "other net revenue" increased by 15 percent in the latest quarter, to more than $900 million, in part because of increased revenue from baggage fees.

Other airlines are seeing similar benefits, especially from the bag fees. American Airlines’ parent AMR Corp. said other revenue, which includes buy-on-board food and baggage fees, rose 7.4 percent to $565 million in the latest quarter, even as total operating revenue fell nearly 21 percent.

For many airlines, the potential pile of cash is just too hard to pass up. Alaska Airlines began charging customers a $15 fee for the first checked bag over the summer after previously charging only for the second bag. Spokeswoman Marianne Lindsey said the decision came after airline executives saw competitors add the fee and concluding it could bring the company an estimated $70 million a year.

“We just couldn’t continue to not charge,” Lindsey said.

‘No one’s getting rich’
The extra revenue offers a buffer, analysts say, but it is only one of the many cost-saving measures airlines need to take in order to avoid bankruptcy, consolidation or even liquidation.

“No one’s getting rich on these moves,” said Richard Aboulafia, a vice president with the aerospace and defense analysis firm Teal Group.

The International Air Transport Association is expecting airlines worldwide to lose $11 billion this year, and the trade group said the overall industry may not become profitable again until 2011 at the earliest.

While fliers have complained loudly about the additional fees, analysts say that, so far at least, they seem to be willing to accept the fees in return for keeping ticket prices down.

“Consumers love to bellyache and whine and then, of course, they go straight to the Web site and click on the lowest price,” Aboulafia said.

A few more seasoned travelers may even be growing sympathetic to the airlines, a number of which have been forced into bankruptcy court in recent years.

After Randy Petersen heard about United Airlines’ plan to let regular customers pay a fee to get the extra perks it provides free to its best customers, he hit the Web expecting to find irate travelers armed with virtual pitchforks.

There were some of those. But Petersen, founder of the popular discussion site, also was extremely surprised to come across a number of comments grimly accepting or even lauding United for taking the money-making step.

In his more recent travels, Petersen said he’s also heard less grousing about things like paying for meals.

“I don’t know if it’s one of those (things where) we’ve all been beaten down so much with fees that we’ve lost our fight,” Petersen said. “It’s looking like there’s a new sense of understanding.”

Virgin America launched in 2007 with a model of charging customers for most services, on the theory that customers who don’t want those things shouldn’t have to pay for them via higher ticket prices.

Spokeswoman Abby Lunardini said the airline's research has shown that an average customer is likely to spend as much as $23 on things like movies or food. She said it's helped that the rest of the industry also is charging for services these days.

“People are more willing to pay add-on fees,” she said.

Of course, many savvy fliers now come on board armed with snacks, electronic devices and other comforts, avoiding some fees. Airports have bulked up their offerings of bring-on-board food and entertainment.

Petersen, who also is editor of InsideFlyer magazine, said the real test of how much consumers will put up with will come this holiday season. That’s when infrequent fliers will take to the skies, some perhaps for the first time since the recession began crimping many people’s budgets.

Because such fees are mostly assessed just prior to or during the flight, many may not realize until they are at the airport that they now must budget to check bags, feed the family and  provide entertainment.

“They don’t see the real impact of those fees until they’re already traveling,” Petersen said.

Some limits
Airlines may already be finding that there are some limits.  After testing a plan to charge customers for drinks such as coffee and water, US Airways went back to offering those items for free this year.

Airlines also are closely watching each other to see which fees work, and how much they can charge. When US Airways pulled the plug on charging for soft drinks, one reason it cited was that none of the other major carriers had followed suit.

“It’s follow the leader,” said Ray Neidl, an independent airline analyst.

Many airlines offer fee exceptions for frequent fliers or first-class fliers, and some make allowances for other special circumstances.

For example, Alaska Airlines does not charge for the first three bags customers check for travel within the state of Alaska. Lindsey, the airline’s spokeswoman, said that’s because many Alaskan customers have no other way to get from remote villages to major shopping hubs, where they stock up on supplies and “are typically bringing everything but the kitchen sink.”

In general, however, Neidl said airlines have little choice but to charge extra fees in a recessionary environment where raising base ticket prices can quickly mean losing customers. But he’s not sure what other fees airlines will be able to add at this point.

“The easy fruit has been picked,” he said.

As fees start to add up, Petersen said more savvy travelers will likely become better at comparing not just the ticket price but also the additional fees. In some cases, fliers may realize that a more expensive ticket might be cheaper once you factor in other fees.

Some airlines are marketing their lack of fees as a selling point. Southwest boasts that it doesn’t charge a bag fee, although it has added other for-fee services such as a $10 option that guarantees early boarding privileges.

But even Southwest hasn’t ruled out adding bag fees down the road. As time goes on, analysts expect that airline customers will have to learn to live with the fees, or without the services.

“Do you not want these services, do you want to pay for them or do you want higher ticket prices? These are your choices,” Aboulafia said.