Airfares and why airlines charge extra for baggage, seats and more

Frontier Airlines booked more than $900 million in revenue in the second quarter of 2022, about half of which is from fees. In its earnings report, it boasted that it was able to squeeze out an extra $75 per passenger. “additional costs, up 33 percent from the same quarter before the pandemic. Net income was $13 million. Sit down and think about what that math means.

“They would be hugely unprofitable without the fees,” said George Ferguson, a senior aerospace, defense and aviation analyst at Bloomberg Intelligence. On average, he estimates that budget carriers Frontier and Spirit double their base ticket price with surcharges for baggage, service and more. “But even Delta is trying to do that with people,” he added.

If you’ve had to book a flight lately, or really in the last 15 years, you’ve definitely noticed the proliferation of fees.

When you start shopping for flights on a website like Expedia or Kayak, you’ll see one price at the start, and by the time you get your credit card, you’ll be paying tens and even hundreds of dollars more than that initial number. Or you go straight to an airline’s homepage to buy and you’re immediately presented with multiple tiers of tickets that you can’t quite decipher. Sure, you understand what basic economics means (you’re cheap and treated as such) and what top-notch is (you’re a big spender and treated as such), but there are options in the middle that are totally unclear. You might pick one, trying to give yourself a better experience, and still have to cough up $40 to pick your seat and $50 to check in a bag.

“Too often people aren’t sure what’s in their cart, they’re often unsure what they bought, they’re not sure what they didn’t buy, and too many consumers are confused by all of this,” said Jay Sorensen , president of IdeaWorks, a travel consultancy.

Being an airline passenger today is feeling like an extra dollar is being squeezed out of you at every turn. Things that used to be free or just the luck of the draw – whether you get a window seat, or some extra legroom – have been removed from ticket prices and are now sold separately. The airline offer is unbundled and it costs a pretty penny to put the bundle back together.

“It’s a question of behavioral economics — airlines are trying to figure out how people are going to behave, and they have policies and prices that respond to that,” said Bob Mann, an aviation analyst. “It’s a game.” And then another nasty one. It’s not just that fees are added to the final price tag; they can also distort travel in other ways, making the experience more miserable, no matter how much money passengers have left over.

Frontier did not respond to a request for comment and Spirit declined to go on record. In July, JetBlue announced plans to buy Spirit, although it is still unclear whether regulators will let the deal go through.

The story of the flight starts with luggage

For decades, it was free for major airlines to check in at least one bag (some low-cost airlines got a head Start when charging). But in 2008, amid rising fuel prices and economic turmoil, that started to rise. Airlines like American and United started paying a $15 fee to have your bag checked in to your destination.

“With record-breaking fuel prices, we must pursue new revenue opportunities, while continuing to offer competitive rates, by tailoring our products and services to what our customers value most and what they are willing to pay for,” said John Tague, then the Chief Operating Officer. officer of United, in a pronunciation at the time.

It turned out to be a profitable venture: the aviation industry made about $1 billion in excess baggage fees that year.

It’s all kind of snowballing from there. Airlines figured out how to strip their offer to get passengers from A to B (the basic economy fare or the budget airline fare) and then charge for the many things after that. It’s a lucrative deal for them – today, airlines earn tens of billions in extra costs.

“Airlines charge these fees because the revenue they generate by either charging the fees or selling the optional products, the airlines make their money,” said Henry Harteveldt, president of Atmosphere Research, a travel industry research firm. “These fees don’t just exist, but they seem to multiply like rabbits.”

More options are nice for passengers in theory, in practice not always

In a sense, customers have rewarded airlines — including low-cost carriers — for their practices, Sorenson said. Consumers like choice in theory, and they are price sensitive, so it’s not a bad idea to let people decide what they will and won’t pay for. For people who get very nervous about traveling, the ability to pick their seat in advance and sit with the people they’re traveling with can be infinitely rewarding. For others not so much.

The problem is that the compensation system is often confusing to navigate and, at the very least, modestly predatory (see: charge to print a boarding pass). Airlines can lure people in with one price, and then they pile up costs at the back to drive up costs. And much of what they ask is not entirely optional.

“In some industries, you break things down so that customers can come in and choose what’s important to them and use it,” Ferguson said. “In the airline, it’s a bit funky, because you usually need most of those things.”

If you are one of those people who can put everything you need in your pockets for a three day trip, then bless you, but most people are not you, and they need luggage to be either checked in or carried on the plane. Sometimes you don’t know what you need – for example to change flights – until the moment comes. It is also worth noting that most people don’t fly more than once or twice a year, making the reimbursement situation even more stressful.

“The pressure is on travelers to really anticipate what their needs will be in advance, and that’s part of the challenge now,” said Melanie Lieberman, senior editor for global features at The Points Guy. “Travelers need to plan more ahead than ever before.”

That means seriously trying to think ahead, reading the fine print, and being quite skeptical of the initial price being shown to you. Mann noted that some co-branded airline credit cards offer freebies such as checked baggage, seat selection and access to airport clubs. “Basically, it’s a matter of seeing which airline relationships have the desired benefits and whether those relationships are cheaper (some are ‘free’) than paying the fees,” he said. Some search sites also allow you to filter to only see options where hand luggage is allowed.

In addition to actual costs, surcharges have distorted travel in other ways – again, this really starts with luggage. Mann recalled talking to the CEO of a major airline in 2008 about baggage charges and warning him that it would likely cause a lot of delays. People would try to bring the bags on board that they had checked earlier, the planes would run out of storage space and loading and unloading the plane would take more time. “He said, ‘Well, yeah, that’s probably right,'” Mann said. Indeed, that was it.

Airlines may need to be a little more candid about money soon

In September, the White House and the Department of Transportation announced a proposed new rule that would require airlines and travel websites to disclose fees in advance. At the time the airfare is displayed, they should list additional costs for things like sitting with your child, canceling a flight, or checking in a suitcase. In a statement, Transport Secretary Pete Buttigieg said the rule was intended to “help travelers make informed decisions and save money.”

If implemented, the new requirements would be a big deal. “This will be huge in terms of forcing airlines and third-party travel sites to disclose fees,” Lieberman said. The airlines seem to know. Airlines for America, the lobbying group that represents the major airlines in North America, said at the time that its member airlines are “fierce competitors” that “already provide consumers with transparency from the first search to landing.”

The DoT is currently collect comments on the compensation line. It is also working to tighten other guidelines around when consumers are refunded for delayed and canceled flights, and to get consumers their money back when they pay for a service they didn’t provide (as in, broken in-flight Wi-Fi).

Sorensen, who is generally friendly with the airlines, isn’t in love with the reimbursement rule — he doesn’t think it’s “practical or possible” to implement. But given what the fees have done for the customer experience, he’s well aware of why the airlines have provoked the “wrath of the government” on them. “The industry deserves government scrutiny right now,” he said.

Not to mention that taxpayers just billions of dollars spent saving the airlines because of Covid. It’s good that the entire industry didn’t go bankrupt during the pandemic, but it’s also hard not to ask if the industry should continue like this.

“The government has given the US airline industry $54 billion in subsidies and wage subsidies, and what are we getting for it?” Harteveldt said. “The ability to complain that the airlines are still around to charge these fees.”

We live in a world that constantly tries to cheat and fool us, where we are always surrounded by scams big and small. It can seem impossible to navigate. Every two weeks with Emily Stewart, look at all the little ways our economic systems control and manipulate the average person. Welcome to The Great Pinch.

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