Oct 31, 2008

Business - The runaway costs of a-la carte air fares

Roger Collis

Travelers will welcome the cascade of cuts in fuel surcharges by airlines such as British Airways, Virgin Atlantic, Lufthansa, Air France/KLM, Thai Airways, Cathay Pacific, Singapore Airlines and El Al, in response to a sustained fall in the price of oil, with jet fuel now half the price it was in the summer. Air Canada has eliminated fuel surcharges altogether on North American flights, instead "folding them into advertised base fares."

This raises some questions: What is the "benchmark" price for jet fuel on which surcharges are based? And with the price of jet fuel accounting for more than a third of most airlines' costs, are surcharges just the means of protecting airline profits during the downturn?

But what incenses travelers more than anything is that the price of an air ticket they have purchased online can just about double when it comes to the final amount charged. Just as we have become reconciled to a raft of taxes - as wide-ranging as the U.S. Animal & Plant Health Inspection Tax, the Sydney Noise Tax and the Canadian Airport Improvement Tax - here come the airlines with charges for almost everything, from checked baggage to onboard beverages, even soft drinks and water, to changing tickets.

The airlines believe that "à la carte," pay-for-all-the-extras pricing is the magic bullet for restoring profitability.

"Airline customers clearly resent these often unclear fees, but they have incredible potential to boost the bottom line of an airline," said Christopher Staab, a managing partner at Airline Information (www.airlineinformation.org), a consulting firm in Miami. So much so, he continued, that despite the worldwide economic downturn expected to hit most airlines very hard in 2009, many of the mainstream U.S. airlines "are expected to be very profitable next year thanks to à la carte pricing."

But there's still a lot of anger out there.

Stan Juster from Karmeil, Israel, writes: "Any day now, I expect airlines to charge for turning on the overhead air spigot. It's an absurdity for airlines to think the public will accept extra fees for checked luggage, seat selection, food and water, pillows and blankets etc. - all under the guise of compensating for higher fuel costs. It's a boondoggle; just another way to increase their profit margin, particularly in light of the recent decrease in the cost of fuel."

Martin Bleasdale from Les Baux de Provence, France, agrees: "They may as well include the rest of the fuel, airport landing fees, amortized price of the plane, meals, drinks, cabin lighting, crew salaries ...," he writes. "That way they could charge full price for a free ticket."

Staab said that every time airlines need revenue they simply increase their à la carte fees: Some U.S. carriers "are charging $15 or $25 for the first checked bag; all except Southwest Airlines now charge between $25 and $50 for the second bag, and have reduced the maximum weight from 70 pounds to 50 pounds," or from 32 kilograms to 23 kilograms, "in economy on international and domestic routes."

Fees vary radically, Staab added: "You go to book and you don't know what you're going to pay. This is a particular problem with online travel agents, like Opodo and Travelocity. I booked a fare on Expedia for $300 and I finally paid $600. They didn't tell me; there was just a little flag saying, 'Extra charges may apply.' But you have no idea what those fees are; it's not their fault, they cannot keep up."

À la carte pricing will work for both airlines and travelers provided it is "transparent" and offers customer choice; after all, why pay for a meal and beverages, or baggage services that you don't need?

Air Canada's à la carte pricing model is being followed by other carriers. American Airlines, for example, has announced it will fully implement à la carte pricing next year. There are likely to be a few basic fares, giving travelers the option of paying for additional services.

At Air Canada's Web site, you can choose from four basic fare levels. The top tickets, Latitude and Executive Class, are all refundable and come with priority check-in, food, drinks and all the frills. The cheapest fare, Tango, requires extra fees for meals, advance seat selection, flight changes and airport lounge access; Tango passengers can save $3 if they forgo frequent flier miles, or do not check a bag.

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