Are À La Carte Fees the Future of Airlines — and Is That Bad?
Say what you will about Spirit Airlines — but they are profitable, outperforming the airline index on the stock market with a return on capital and a growth rate both at 28 percent, as well as an adjusted net income per share increase of 36.4 percent. Their adjusted net income for the first quarter 2013 was $32.8 million, or $0.45 per diluted share, and they had $483.5 million in unrestricted cash and cash equivalents as of March 13, 2013.
Are À La Carte Fees the Future of Airlines — and Is That Bad?
FlyerTalk members in the United MileagePlus (Consolidated) forum have taken notice about how the profits of Spirit Airlines are soaring, saying that United Airlines claims to be a premium legacy airline while refusing to lose customers based on airfare, and wondering if an emulation of the pricing policy of Spirit Airlines is in store for United Airlines in the future.
It is no secret that ancillary fees play a major role in the commercial aviation industry — to the tune of $36 billion in 2012. Frontier Airlines announced last week its intention to be an “ultra-low-cost carrier” similar to Spirit Airlines. Change fees have increased within the past month on all of the legacy carriers in the United States. Despite higher fuel costs, airlines have either slowed or stopped hemorrhaging cash profusely year over year — and some are even turning a profit.
Delta Air Lines has been profitable enough lately to announce a dividend of six cents per share — as well as repurchase $500 million — of its stock.
This is all great for the airlines — but is it good for you?
As long as airlines are transparent about charging ancillary fees, I do not have a problem — but don’t tell me that by doing so, I will save money on airfares. Perhaps I have not been observant enough, but I have not seen airfares decrease after ancillary fees have been implemented for products and services once included in the price of the airfare but are now unbundled.
Driving north on Interstate 85 in Atlanta, I had to laugh at a billboard with Delta Air Lines proudly announcing that your first checked bag is free when you used their branded charge card. I remember when the first checked bag was always free — even if you were flying as a passenger on Delta Air Lines for the first time — and with no strings attached…
…so now that passengers without SkyMiles Medallion elite status must pay for the first checked bag if they do not used a branded SkyMiles charge card, are they paying lower airfares? Perhaps — if they choose to purchase something called a Basic Economy airfare which are not refundable, no changes are allowed, and you are assigned a seat only when you check in for your flight.
The question is: are Basic Economy — or E class — airfares relatively less expensive than T fares were in the past, which used to be the least expensive? There are too many factors for a proper direct comparison — and perhaps the airlines prefer it that way.
Do you remember when the airlines were not doing so well for a variety of reasons? Do you remember when some FlyerTalk members wanted to “save” their preferred airlines and would do whatever it took to ensure that they supported them? Those same FlyerTalk members now seem to feel betrayed by the perceived deterioration of their benefits — considering recent policy changes by the airlines as a slap in their face with regards to their loyalty…
…but let us be honest: if you owned a company which had an opportunity to become significantly more profitable, would you do it? Are commercial airlines becoming more profitable in an unethical manner, or are they justified in their recent policy amendments?
There are many FlyerTalk members who say that this day was a long time coming, as there was no way the airlines could survive if they kept giving away the store and offering many of their frequent flier loyalty program members elite perks and benefits instead of only to a select few. Sadly for frequent fliers, there is plenty of logic to restricting elite perks and benefits to to more profitable customers of an airline.
I have not done any research on this yet, but in the back of my mind, I still recall when airlines based in the United States were bailed out by the federal government. If they had not done so already, will any of the airlines which are now profitable step forward to repay the federal government of the United States what they were given in order to survive? I am interested in your comments on this thought, as I am thinking about writing an article in the future.
In the meantime, I asked this question before and I will ask it again: is the unbundling of products and services from airfares and being charged ancillary fees for those products and services good for you?
Only you can answer this question — but I will leave you with a thought:
There have been times in the past where I purchased an economy class airfare for a flight, thinking that I would much rather be a passenger in the premium class cabin. Think about it: wider seats with more legroom, meals, in-flight entertainment, more attentive service, an amenity kit — it all sounds great, right?
What if you were paying $1,000.00 more for a premium class airfare? Would it still be worth it to you? What about $2,000.00 or $3,000.00?
Despite the amenities, I would balk. I could pack my own amenity kit for $50.00 — if that much. I can have an excellent meal at a good restaurant for $150.00 on the extreme end of expensive for me — and because I do not drink alcoholic beverages, my meal would not include them, meaning that they would also be useless to me in the premium class cabin. I could get a decent hotel room with a comfortable bed for $250.00 for the night if I had the time to spend relaxing upon arrival instead of sleeping in a flat bed seat on the airplane. I could bring my portable electronic device as in-flight entertainment for no additional cost other than the initial cost to purchase the device. I can live without more attentive service and a wider seat for 13 hours, as I have done it before.
Does the future portend more of the pricing model of a Spirit Airlines, where you can expect to pay up to $100.00 each way for the optional privilege of placing the bag you carried aboard the aircraft into an overhead bin on airfares as low as $11.00?
The funny part is that even though I can live without many of the amenities offered aboard aircraft during flights — whether they cost extra or not — I am not thrilled about flying an airline with policies similar to those of Spirit Airlines, which appears to be having the last laugh…
Photograph ©2018 by Brian Cohen.