Airlines Will Collect Record Numbers of Passenger Fees in 2015
2 Dec, 2015By: Tracey Schelmetic
Airline passengers grumble a lot about a variety of things: late or cancelled flights, high (and inconsistent) airfares, uncomfortable seats, bland food and annoying fellow passengers.
High on the list of customer complaints this year, however, are extra fees. These might be for extra carry-on bags, speaking with a live agent at the counter, getting an edible meal or even being overweight. Some airlines have really gone over the top on fees: Norwegian Airlines charges $5 for the use of a blanket, budge airline Ryanair charges £110 (about $168) to correct the misspelling of a name on a ticket, and Australia’s Qantas Airlines charges customers to join its frequent flyer program (nothing says “We value our customers” more than charging them to join your customer loyalty program).
Is the secret, therefore, making American airline passengers think like their counterparts abroad, who are willing to cough up money in fees if the price of a ticket is low?
It might very well be the case. Despite all the extra fees (and the grumbling), there is evidence that it’s not stopping global passengers from flying, and the airlines are making a killing on these fees. According to forecasts by airline industry analysts IdeaWorks Company, the global airline industry will have collected $59.2 billion in passenger fees and other income besides airfares in 2015. This represents an increase of 18.8 percent over 2014, according to the report. The study also found that fees today are generating more total revenue for airlines: nearly eight percent in 2015 compared to 6.7 percent in 2014.
Passengers have attempted work-around solutions for some of the fees by reducing their number of checked and carry-on bags and using digital ticketing and check-in. Airlines have responded by attaching fees to new things. The IdeaWorks report found that revenue from bag fees among U.S. carriers fell slightly over the last year, but revenue from the sale of food, early boarding access, drinks and Wi-Fi connection fees went up.
“Airlines began in 2008 to charge fees to check bags and buy food, drinks and other extras as a way to boost revenue during the Great Recession,” wrote Hugo Martin for the Los Angeles Times. “Since then, revenue from passenger fees has climbed steadily.”
Of the global $59.2 billion that will be earned, $22.5 billion of it will come from business relationships airlines have with other companies: the sale of frequent flier miles to credit card companies, for example, or commissions from bookings of hotel rooms and rental cars by airline passengers. In the U.S., the biggest airline companies will have pocketed $18.1 billion in extra fees by the end of this year. This number is up from $15.4 billion last year, according to the IdeaWorks forecast.
Will passengers get sick of it and quit flying? It doesn’t look like it. In recent years, the increase in airline revenue has largely been driven by low-cost carriers (LCCs), which now control about 25 percent of the worldwide market. The reason these carriers can be so low cost is their ability cut out extra expenses to keep a healthy profit margin: that includes “extras” like carry-on bags, blankets, food and help from a live ticketing agent. At least the pressurized air in the cabin is still free…for now.