Fuel Costs, Competition Spur Airlines to Yank More Perks And Add Even More Fees

Source: Wall Street Journal
Author: Scott McCartney

The fee frenzy at many big U.S. airlines is increasing: as of this month, a pillow on most Air Canada flights costs you $2. And a seat in the exit row (with more leg room) on most United flights now has a price tag of between $24 and $99, unless you're an elite-level frequent flier.

That isn't all. It costs $2 (plus tip) to use the services of a skycap to check a bag at some airports on American Airlines, UAL Corp.'s United Airlines, Northwest Airlines, US Airways and Alaska Airlines, a division of Alaska Air Group Inc. Northwest is charging $1 for some trail mix to go with your beverage. Both American and Northwest have stopped serving pretzels to coach passengers on many domestic flights. And keep your wallet handy when you head to the airport this Thanksgiving -- several carriers recently started charging $25 to confirm a seat on a different flight if you want to get home early.

Big carriers once positioned as full-service providers have slashed amenities for coach passengers and found more services for which they can charge added fees. With fuel prices high and fare prices low, big airlines have continued to pile up billions in losses despite slashing billions of costs from their operations through lower pay, less-expensive airplane leases and more productivity. So they are seeking added revenue wherever they can.

As a result, the legacy airlines have become no-frill airlines while the discounters such as Southwest Airlines and jetBlue Airways now offer more perks and free services. For example, most domestic flights on American, Northwest and Delta Air Lines don't have pillows anymore. But Southwest does.

"We're not a full-service society anymore," says Tim Wagner, a spokesman for AMR Corp.'s American. "We're allowing the customer to choose services, like an a la carte menu."

So far, carriers have been able to keep adding fees without alienating customers. Most customers just shrug, especially since elite-level frequent fliers are often immune to fees and are plied with added perks like first-class upgrades and preferred seating.

"With fuel prices what they are, all one should feel entitled to for the price of many flights these days is a seat," says Steven Allen, an elite-level frequent flier on Northwest. "That everything else costs extra only makes sense."

Airlines know they risk irritating customers. Continental Airlines, for one, is trying to stand apart by continuing to serve meals and supply pillows and free curbside baggage checking.

Airlines say the added fees are helping their bottom lines. United says selling upgrades to Economy Plus, which has more legroom than regular United coach seats, has generated millions of dollars in revenue. "At the end of the day, the customer who pays more, and even flies more miles, gets more in return from United," spokeswoman Robin Urbanski said. Dumping pillows saves American $600,000 a year, according to Mr. Wagner, and American's passenger surveys show that its frequent-flier program is a far bigger factor in buying decisions than pillows.

Air Canada, a unit of ACE Aviation Holdings Inc., has taken the fee-for-service practice to the extreme, offering bare-bones tickets with no perks -- not even assigned seating -- and enticing customers to pay more for less worry and more comfort. Paying a higher price may get you a free meal on board the plane or the ability to change a reservation without an added fee, for example.

Air Canada, which recently reorganized in bankruptcy itself, went further when it began selling "comfort zone" kits for $2 on Nov. 1. Passengers get an inflatable plastic pillow with a cloth covering, and a blanket, both of which they can keep. (Buying a kit is the only way to get a pillow onboard for flights in North America.)

"It's all about providing options," said spokesman John Reber. "Customers can choose what they value."

That's fine with discount airlines, which have seized a competitive advantage with amenities like live satellite-fed television and radio. Who would have thought Southwest's two packs of peanuts would look downright deluxe?

There is a danger of angering customers who pay premium prices for a ticket, and then get nickel-and-dimed at the airport.

Robert Miller, who lives in São Paulo, paid Delta about $5,000 for his family to visit the U.S. in July. The family's baggage weighed in under Brazilian limits of 70 pounds per bag, but on the return trip leaving the U.S., Delta hit him for $25 extra on each of four bags declared overweight at about 65 pounds.

Ultimately, he got revenge. He complained to Delta both in the U.S. and in Brazil. Delta's frequent-flier program officials in Atlanta got $100 refunded to his credit card. Then Delta's Brazilian operation also refunded $100. "I kept both refunds," said Mr. Miller.