United CEO Says Hidden Fees Aren’t Going Away, “That’s What Businesses Do”
Jeff Edwards August 03, 2015
Speaking in front of a group of industry insiders, United CEO Jeff Smisek defiantly announced that added fees for flyers is just the way business works.
United Airlines CEO Jeff Smisek has a message for passengers who are unhappy with add-on airline fees — Get used to it!
“[Consumers] criticize us if we charge for more legroom,” Smisek told attendees of an industry banquet July 30. “Let me tell you though: That’s what businesses do.”
Smisek was vehement in his defense of airlines charging fees for everything from checked bags to flight changes to comfortable seats, reports Reuters. “If you want more data on your data plan so you can watch faster, better cat videos, you call AT&T, and they’re happy to increase your data plan,” said Smisek. “And they charge you for it. That’s what businesses do.”
Smisek’s comments came just one day after Rep. John Mica of Florida introduced legislation in the U.S. House of Representatives to reign in steadily increasing airline bag fees. The proposed Baggage Fees Fairness Act would limit the bag fees airlines charge to $4.50 per item for at least the next 15 years.
While Smisek insisted that those opposed to airline fees are simply “having difficulty recognizing that we’re now a business,” Mica, Chairman of the House Transportation Oversight Subcommittee, argues that airline fees are growing increasingly out of control.
“It’s time to bring some fairness to the soaring fees that airlines are charging consumers for basic services,” Mica noted when he unveiled his bill.
The Department of Transportation (DOT) is also considering new rules that would require airlines operating in the U.S. to declare ancillary charges such as checked bag fees when publishing airfares.
Smisek also used his banquet speech to fuel the ongoing Open Skies feud, lambasting the Middle East Three — Emirates, Qatar Airways and Etihad Airways — for unfairly using government subsidies to undercut the competition. All three Gulf carriers have repeatedly denied the allegations levied against them by United, American Airlines and Delta Air Lines.
[Photo: iStock]
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As a free market, libertarian leaning person I tend to agree with allowing healthy markets to take care of themselves. When industries like telecom/cable and the airline industry spend millions lobbying Congress to angle themselves to an oligopoly position by virtue of constant acquisition and merger....they should understand that consumer backlash (and therefore backlash from elected officials like Mica) is going to occur. These 2 industries have such enormous barriers of entry that Washington must either A) ensure more than 3 to 4 major players exist or B) regulate these industries more tightly than others. Washington has ignored option A and has been convinced by airline and telecom lobbyists that we'll all be better off with mega-mergers. But we all know only shareholders and C-level execs are better off (see Delta-Northwest/ATT-Cingular/United-Continental/ and now ATT-DirecTV). Time has shown us that mid to entry level employees and the majority of consumers do not receive a net benefit from these mergers. The airlines are now "exerting pricing discipline" meaning, you have less options and they know it. Bottom line is that if I only have 3 to 4 choices for air travel and 1 to 2 choices for internet/TV, then I guess I have to get behind those that are for tight regulation of these industries.
Some comments: - whether people like it or not, bag fees, etc. are here for the long haul. What was said is absolutely correct, people just don't like hearing it. I guess that's fine, but don't forget - you asked for this. Well most did. By insisting that price means everything, and not willing to pay even a little more for a better value. You wanted free food, free bags, more space at your seat, immaculate service, and other extras that cost, but refuse to pay anything more than for the bare minimum. When it becomes financially viable to offer better service and extras included in the ticket cost because people will pay a bit extra to get more value, than you bet the airlines will do it. It's what happens in other places in the world (think Asia, especially - they offer both the low-cost service with airlines like AirAsia, but full service carriers, like Singapore, Thai, etc. cost more but provide real service). But when almost everyone insists on getting the lowest price, then no, you won't get those extras. There have been plenty of efforts to bring better value to folks at a bit of a higher ticket cost, but with almost no one biting, they don't last. That's why you pay for food, baggage fees, etc. today - Agree with the confusion over the fees being "hidden". Its one click off the homepage from every airline's site. And now the norm, so everyone knows about them anyway. - Thankfully, the legislation to limit baggage fees won't pass. For one, I thought the GOP wanted to do everything to let the free market reign - how is this different from regulation? And what does the congressman think will happen if the airlines are forced to reduce the checked bag fees by 80% or more. Does he think the airlines will sit down and just take the revenue loss. Nope - they'll stick another fee that will make up for it, and probably, will more than make up for it. He can start a cat-and-mouse game, but no, it won't end. Of course, what does the congressman care - I think its safe to say he's got elite status and doesn't pay for his bags anyway, those come free to him for travel he does anyway, off the backs of taxpayers like me and you. - Sure, the idea comes up time-and-time again about bringing in foreign competitors on domestic routes. But that is assuming foreign competitors are even interested in doing this. It's far from a guarantee that they are, and even if so, I don't see it being anything other than providing extra competition on routes that already have it. Might it make the JFK-SFO/LAX market even cheaper for folks, where airfares are already reasonable. Sure. Ditto for within the big cities of the Northeast, intra-CA, transcons, etc. But even if the ME3, or EU carriers, or whoever comes in, do you think this will do a thing to help the places that need it most? I for one, don't forsee any foreign competitor aiming to take up routes to all but the most primary cities that already have plenty of service/competiton. It won't help CVG, one of the highest price places to fly out of for years, nor the Tulsa's, Witchita's, Portland, ME's, or the tens and hundreds of other small to medium size cities where fares are already highest. Maybe not even the smaller big cities, the Detroit's, Minneapolis', Orlando's, etc. of the US. For them, it will be the same as always.
Opening up of domestic routes would be a great idea. The big 3 is going to cry that it will cost jobs, but the gov can mandate that the overseas operators must use local labor (FA, Ground stuff, etc) The only loser would likely be the CEOs themselves at the end of the day.
Jeff Smisek is just doing his job. The "speech" is his way of dealing with realization that businesses have to find a new way to please customers, instead of trying to fool them. But he doesn't want that! He wants to keep his business-as-usual approach to profits -- by raising prices on us, by giving us less, or (most likely) both -- and he's HOPING we won't notice. Well Mr. Smisek, we're ready for your business-as-usual stance. And we've noticed. It won't surprise me one bit if next year you propose these as new services: > NO bags (no purse, laptop bag, checked or carry-on bags) without paying a fee -- you'll offer us extra (of your less useful) FF miles if we buy a separate seat for our luggage, or if we ship it via your new "air mail" carrier (I predict United will enter the shipping business to carry our luggage for our $$$ -- a new business separate and distinct from your current people-carrier business), So luggage and bags will be gone from what we call air travel. That's what businesses do. > NO food or drink at our seats -- we know it costs a ton to bring food/drinks in that big old cart, and then to later take away OUR trash. Now, if we want food, we'll be assigned a time-slot when we must go to the galley, pay for our food, and eat it there. And then we'll have to pay your extra "disposal fee" to dispose of OUR trash. So no food+drink carts to bring us food. As Mr. Smisek will eagerly remind us, AT&T doesn't bring us food in their stores, so neither should United. That's what businesses do. > NO more unused space on planes -- for each seat we pay for, we'll get to sit there folding up our our feet, and no wasted space in front for our feet to dangle. If we want space to spread our legs or to relax, that privilege requires more cash, And we can forget the aisles as we know them. They'll make them narrower and make them one-way. > We've all heard of the fuel surcharge, where even though airlines buy huge fuel lots at discount prices, they make us pay extra. So get ready for the latest GREEN pollution surcharge -- where we pay extra because that longish flight we've booked causes more pollution. And don't forget the weight surcharge -- where we pay this surcharge beyond the price of the ticket, based on our weight. They'll weigh us at the airport, like cows, just before boarding. Beware pregnant women, the extra weight of your unborn baby will cost ya! Based on Smisek, hidden fees aren't going away! > And for our business and first class passenger, NO more free credit card payments. Just as gas stations charge more for credit cards, so too will the airlines. That 2-4% fee for credit card use adds up for a $5000 or $8000 ticket. So unless you pay cash, they'll charge more for those seats. That's what businesses do -- for their most valuable clientele. > And this last one's a fun visual imagery - remember drinking water from a garden hose? So NO more water in a free bottle/cup -- they'll offer to bring a hose to our seat and let us suck from the hose. But be careful -- if we let any water drip down, we'll have to pay a water-wastage surcharge AND a water-cleanup surcharge. So drink up passengers, the water's free. That's what businesses do! Fly the new United! You'll pay more, & later more, to cross the Friendly Skies!
As much as many do not like the comment JS made, he was right, that's what they get paid to do, increase shareholder value. Clearly customer satisfaction is also important in the mix as well, but load factors are high, so, it is the smart business move to make. When another economic slump comes, they will no doubt modify fees and fares and then we shall see if the customer remains loyal or not