The year 2015 was very good to the airline industry. But to the airlines’ customers, not so much. While airlines reported a threefold increase in earnings, customers are getting squeezed, both figuratively and literally, through increased, nitpicking fees and increasingly smaller seat widths and legroom.
In early May, the U.S. Department of Transportation (DOT) reported that the top 25 airline carriers generated $25.6 billion in after-tax income for 2015. That number is a staggering threefold increase over the $7.5 billion reported in 2015 and 52 times more than the $0.5 billion in income in 2011.
Where, might you ask, is that profit coming from? Certainly tickets are the major source of revenue for the airlines, but a growing percentage is made up from collected fees. And unlike those hard-to-open little bags of munchies, it’s not peanuts.
Baggage fees and ticket change fees accounted for 5.1 percent of all airline revenue in 2015. That means customers spent $3.8 billion alone to haul luggage last year and another $3 billion in reservation change fees. In 2007, customers spent a comparatively paltry $464.3 million. Other fees are bundled into other revenue numbers and not broken out, according to the DOT.
Certainly the increase in profits was due in no small part to the steep worldwide decline in fuel prices in 2015. Fuel costs dropped by nearly 40 percent in 2016, and while some of those costs were passed onto customers in the form of some trimmed fares, other costs — labor, airport charges, maintenance — remained constant. The airlines clearly pocketed a good chunk of the reduced fuel expenses.
In total, airlines spent $27 billion on fuel in 2015, down from $43.4 billion in 2014.
Airlines have been tacking on added fees for years. While each of these fees by itself may not seem like much, the cumulative effect can be significant. Further these fees do little to help airlines’ reputation with the flying public. Let’s look at a few of the most egregious fees:
- If you’re in the middle of New York City, you can find free wifi on nearly every street corner. Flying over Manhattan? Not so fast. Airlines routinely charge for in-air access, and often that access is poor in terms of reliability and speed.
- Carry-on fees. When luggage fees began to rise, more and more passengers began stuffing luggage into overhead bins, slowing down boarding and deplaning times. Now, some airlines, particularly economy carriers, are charging for the privilege of hoisting your bags over your seat.
- Book by phone. Want to talk to an actual live person to book a ticket? On many airlines, this luxury will cost you $25 to $35.
- September 11 security fee. No one wants a repeat of that horrific day, but this security fee seems gratuitous. It is not even the fault of the airlines, but the federal government.Are airlines pouring some of that profit back into the customer experience? Well … it depends. United and American have brought back snacks, with the latter even offering free economy-class meals on its Dallas-to-Hawaii flights.
However, airlines are still putting the squeeze on passengers. The average seat pitch is now 31 inches, compared to 35 inches in the 1970s, prior to industry deregulation. The seat width today has shrunk from 18.5 inches in the 1990s and early 2000s to just 16 inches today. Smaller seat width and pitch lets airlines cram more seats onto each flight.
Congress has taken up the issues of decreasing quality and rising fees for passengers. Democratic senators Ed Markey of Massachusetts and Richard Blumenthal of Connecticut introduced a bill in March 2016 that would prohibit airlines from charging fees that are “unreasonable or disproportional” to the cost to deliver those services. If the bill passes, the U.S. transportation secretary would determine what fees are reasonable.
“In recent years, fees and ticket prices have gone up despite the fact that gas prices and airline choices have gone down,” Markey said. “Airlines should not be allowed to overcharge captive passengers just because they need to change their flight or have to check a couple of bags.”
The bill would allow for airlines, for example, to charge fees to check a first bag that cover the cost of baggage handlers, processing and ticket agents. However, the senators ask why, in that example, the cost of a second bag would be higher than the first, as is standard practice for most airlines.
“With all the frills of flying already gone,” Blumenthal said, “airlines are increasingly resorting to nickel-and-diming consumers with outrageous fees.”
Regards,
Ethan Warrick
Editor
Wealth Authority
