Airline Fee Games

Perhaps one of the most entertaining stories of the last week has been Spirit Airlines' decision to start charging for carry on bags that have to go in the overhead compartments. The screaming and wailing was both predictable and silly. Let me first say that Spirit and the other air carriers can charge whatever they want. We, however, get to reply by simply finding another airline.

The real problem with this new fee? It further highlights the airline industry's inability or unwillingness to simply charge a fare that is based on their cost. For a very long time, the airlines have competed by lowering fares and lowering fares and lowering fares. No eye towards cost or profit. At least not a priority. In the course of cutting fares, they actually hurt themselves and now are looking to replace that revenue with these fees.

Some will look all the way back to deregulation of fares and such and blame that. Not so fast. It was the airlines' decision to offer below cost rates that led them here. And those costs include fuel, landing fees and the ever bandied about union contracts. All of those cost factors were ignored in the race to fill seats, even if they are given away well below cost.

It is only in the last year or two that the airlines decided to charge for checked baggage. That almost made sense. After all, checked luggage entails handling and staff. As someone that travels a lot, I generally check my bag. It is just easier. However, most travelers responded by trying to fit a week's worth of stuff into the overhead.

This, of course, led to the endless wait to get on and off the plane while some passenger attempts to jam their grand piano into the overhead to save the $25. And the airlines stopped verifying the size of carry on luggage lest they upset a passenger by enforcing a regulation. And passengers started bringing larger and more items on board.

Here is where, once again, the airline industry proves to be relatively bad at running an actual business. Rather than tack on all of these little fees, they could have simply raised the average fare a few dollars. Imagine if American Airlines (the innovator in baggage fees) had simply added $15 to every ticket sold instead of the checked baggage fee. Nobody except a handful of people would have even noticed, let alone made an issue out of it. After all, you still have to get where you were going.

But they didn't for fear the other airline might not raise the fare and so on. Even though there are limited numbers of flights to every location and the traveler really has little choice most of the time. In fact, they set about leaving fares artificially and sometimes ludicrously low. Not only low, but just goofy in some instances.

Here is a great example of goofy. I can go from Ft. Lauderdale to Dallas on a direct flight for the exact same fare that I would pay to go Ft. Lauderdale-Atlanta-Dallas. Look at a map and explain that if you can. Over a thousand extra miles and not one extra penny on the fare. I know - spoke and hub. But the direct flight simply costs less. Less fuel, less landing fees, less aircraft, less crew. Rather than charge me what it really costs, the wizards that run the airlines see no problem here.

And rather than simply raise all fares to compensate for fuel and other costs, they decided to start adding "optional" fees. Luggage, food and in at least one case, restroom access. Rather than understand the mindset of their customers and the general consumer objection to these little fees, they just blundered ahead.

And now the newest fee - Spirit's overhead compartment fee. What makes this all the more entertaining is watching the airline try to explain this stuff somehow. And what makes it even more fun is knowing that all they had to do was simply raise the price of the average ticket. No announcements, no press releases. Just raise the fare. Nobody would have commented and there would be no furor.

Airlines are running on a flawed business model that makes their primary product - seats on the flight - a loss leader while trying to recoup that with these nickel and dime fees. In other words, they continue to pretend to offer deals that are really sucker deals. Almost like the used car salesman who offers you the car for $5,000 plus a key charge, plus a charge for talking to you, plus a charge for the paperwork, plus a fee for the showroom decor and so on.

As an advertising/marketing professional, I can tell you without a flinch that consumers are far more accepting of an overall price increase reflecting known costs than nickel and dime "add-on" fees. Sure, nobody wants to pay more, but they will if it seems fair and appropriate.

Here is an example. About a year ago, Starbucks raised their prices about 5 percent overall. They did not issue a press release. The employees at the store simply said, "Well our costs went up." People complained for about 10 minutes. Then they ordered their beverage of choice. Now, imagine if they had decided to add a 25 cent cup usage fee or 30 cents for a carry tray for multiple drinks of 10 cents of a sugar packet. The screams would have been deafening.

Well, this is the new airline business model. Sell a discounted non-refundable seat and then charge for every little thing to make up the loss. It is only a matter of time until you are charged every time the flight attendant talks to you.

The airlines have now painted themselves into a corner with low fares and high fees. The joke - once you add it up, it costs just what it would if they charged what the seat was really worth had they simply raise dthe fare to a realistic level.