Good Question: Do Airlines Really Need Fee Money?
MINNEAPOLIS (WCCO) – You already pay a fee for an in-flight snack, to check a bag, and to sit on the aisle.
Now Delta Airlines is exploring tempting people with free wireless internet to get onto Amazon.com, as a way to charge people $18 for internet access.
The airlines always say they need to charge the extra fees so they can survive. But do airlines really need the fee money or are they being greedy?
In the first three quarters of 2011, airlines brought in $2.6 billion in extra fees.
Delta is the undisputed king of fees, taking in $814 million in those three quarters.
Terry Trippler, airline analyst and operator of TerryTrippler.com, says Delta had their backs against the wall.
“They had to start making money or go out of business,” said Trippler.
“Technically, we want something from the airlines we can’t afford. And the airlines can’t afford to provide us that service. So what they’ve decided to do is keep the fares steady,” he said, and augment that revenue with fee revenue.
According to the Bureau of Transportation Studies, in 1995, the average cost of a round-trip domestic airfare was $290. Today, the average airfare is just $368 – and that includes the extra fees they’re charging.
If you adjust today’s airfare for inflation, that $368 in 2011 money is more like $247 in 1995 dollars. So we’re essentially paying less for airfare than we were in 1995.
According to airline finance analyst Bob Herbst, the owner of airlinefinancials.com the average fuel cost for a one-way airplane fare is around $77 today, a 227 precent increase from 2000 fuel costs. And the average labor burden has dropped, as airlines today have 325,838 employees, a 24 percent drop from 2000 staffing levels.
Ticket prices used to not cover the huge labor costs airlines had.
“The idea was butts in the seats regardless of the cost. We joked, the airlines were selling these seats at a loss of $100 a head and trying to make it up with volume,” said Trippler.
Today ticket prices aren’t covering the huge cost of fuel. And if they raised ticket prices instead of adding the extra fees, “We wouldn’t travel,” said Trippler, noting that consumers are extremely sensitive to that initial ticket price.
“Year 2000 ended one of the largest growth periods and most profitable five years in airline history. 9/11 devastated the industry,” said Herbst, who noted, “Airlines today are finally focused on making profits opposed to generating cash flow.”