My final post of the year, and I thought I’d reflect ever-so-quickly on The Year of the Fee. Consumer-facing media has spent lots of words noting how consumers hate airline fees. They hate them so much that they gave US Airways upwards of $400 million in fees during 2009. Oh yes, consumers will stop flying airlines that introduce fees. Or not.
Fees have revolutionized the industry in a way we haven’t seen since Saturday night stays were introduced almost 30 years ago. Before the recent fee revolution, network carriers were in a miserable situation: LCCs had eliminated most of the restrictions that allowed airlines to charge business travelers more (ie, Saturday night stays), which drove down average fares. LCCs could absorb this because of their cost structures. Network carriers could not.
Until they decided to play the same game. They eliminated economy fare restrictions and introduced fees that would allow them to make up (some-to-most) of the decrease in average fares. Air Canada led the way by bundling various amenities together and charging different fares for each bundle. But most reservations systems can’t handle this approach. GDSs – the systems travel agencies use to book tickets – are trying to catch up. Corporations are struggling to catch up as their travelers face fees that have not been built into the price of a ticket. Airlines are figuring out how to use fees to balance yield management tools. And how fees are impacting on-board services. And baggage. It’s a floor wax. It’s a dessert topping. It’s a floor wax. It’s a dessert topping, you cow! (sorry)
In short – fees have touched every part of the industry, from the consumer, to the travel agent, to the corporation, to the baggage handlers. We have just begun to see the limits of unbundling – it will go farther, trust me. European airlines have tried unbundling credit card fees. And check in fees (hi, Ryanair). It’s really going to be up to the consumer to get used to it – this is not going away.
Well, that is until some airline proves that they can make more by not charging any fees (Southwest is sort of sticking to its guns here, but not really. And I suspect we’ll eventually see them come around). Concertgoers have complained about ticket fees forever, but they still flock to concerts. Travelers can whine all they want, but I’m going to guess that exactly zero passengers who say they’ll never fly X airline again actually follow through. Airlines are in a great position right now: consumers shop by ticket price, not total price. Some airlines have tried introducing the total price idea, but consumers have not yet come around. This benefits network airlines, which can match on fares, then upsell with fees. Not a terrible spot to be in.
Merry Christmas, everyone and happy new year. See you in 2010.