Are À La Carte Fees the Future of Airlines — and Is That Bad?

An Airbus A-320 aircraft operated by Spirit Airlines departs from Fort Lauderdale Hollywood International Airport on January 29, 2011. Photograph ©istockphoto.com by Ivan Cholakov.

Say what you will about Spirit Airlines — but they are profitable, outperforming the airline index on the stock market with a return on capital and a growth rate both at 28 percent, as well as an adjusted net income per share increase of 36.4 percent. Their adjusted net income for the first quarter 2013 was $32.8 million, or $0.45 per diluted share, and they had $483.5 million in unrestricted cash and cash equivalents as of March 13, 2013.

FlyerTalk members in the United MileagePlus (Consolidated) forum have taken notice about how the profits of Spirit Airlines are soaring, saying that United Airlines claims to be a premium legacy airline while refusing to lose customers based on airfare, and wondering if an emulation of the pricing policy of Spirit Airlines is in store for United Airlines in the future.

It is no secret that ancillary fees play a major role in the commercial aviation industry — to the tune of $36 billion in 2012. Frontier Airlines announced last week its intention to be an “ultra-low-cost carrier” similar to Spirit Airlines. Change fees have increased within the past month on all of the legacy carriers in the United States. Despite higher fuel costs, airlines have either slowed or stopped hemorrhaging cash profusely year over year  — and some are even turning a profit.

Delta Air Lines has been profitable enough lately to announce a dividend of six cents per share — as well as repurchase $500 million — of its stock.

This is all great for the airlines — but is it good for you?

As long as airlines are transparent about charging ancillary fees, I do not have a problem — but don’t tell me that by doing so, I will save money on airfares. Perhaps I have not been observant enough, but I have not seen airfares decrease after ancillary fees have been implemented for products and services once included in the price of the airfare but are now unbundled.

Driving north on Interstate 85 in Atlanta, I had to laugh at a billboard with Delta Air Lines proudly announcing that your first checked bag is free when you used their branded charge card. I remember when the first checked bag was always free — even if you were flying as a passenger on Delta Air Lines for the first time — and with no strings attached…

…so now that passengers without SkyMiles Medallion elite status must pay for the first checked bag if they do not used a branded SkyMiles charge card, are they paying lower airfares? Perhaps — if they choose to purchase something called a Basic Economy airfare which are not refundable, no changes are allowed, and you are assigned a seat only when you check in for your flight.

The question is: are Basic Economy — or E class — airfares relatively less expensive than T fares were in the past, which used to be the least expensive? There are too many factors for a proper direct comparison — and perhaps the airlines prefer it that way.

Do you remember when the airlines were not doing so well for a variety of reasons? Do you remember when some FlyerTalk members wanted to “save” their preferred airlines and would do whatever it took to ensure that they supported them? Those same FlyerTalk members now seem to feel betrayed by the perceived deterioration of their benefits — considering recent policy changes by the airlines as a slap in their face with regards to their loyalty…

…but let us be honest: if you owned a company which had an opportunity to become significantly more profitable, would you do it? Are commercial airlines becoming more profitable in an unethical manner, or are they justified in their recent policy amendments?

There are many FlyerTalk members who say that this day was a long time coming, as there was no way the airlines could survive if they kept giving away the store and offering many of their frequent flier loyalty program members elite perks and benefits instead of only to a select few. Sadly for frequent fliers, there is plenty of logic to restricting elite perks and benefits to to more profitable customers of an airline.

I have not done any research on this yet, but in the back of my mind, I still recall when airlines based in the United States were bailed out by the federal government. If they had not done so already, will any of the airlines which are now profitable step forward to repay the federal government of the United States what they were given in order to survive? I am interested in your comments on this thought, as I am thinking about writing an article in the future.

In the meantime, I asked this question before and I will ask it again: is the unbundling of products and services from airfares and being charged ancillary fees for those products and services good for you?

Only you can answer this question — but I will leave you with a thought:

There have been times in the past where I purchased an economy class airfare for a flight, thinking that I would much rather be a passenger in the premium class cabin. Think about it: wider seats with more legroom, meals, in-flight entertainment, more attentive service, an amenity kit — it all sounds great, right?

What if you were paying $1,000.00 more for a premium class airfare? Would it still be worth it to you? What about $2,000.00 or $3,000.00?

Despite the amenities, I would balk. I could pack my own amenity kit for $50.00 — if that much. I can have an excellent meal at a good restaurant for $150.00 on the extreme end of expensive for me — and because I do not drink alcoholic beverages, my meal would not include them, meaning that they would also be useless to me in the premium class cabin. I could get a decent hotel room with a comfortable bed for $250.00 for the night if I had the time to spend relaxing upon arrival instead of sleeping in a flat bed seat on the airplane. I could bring my portable electronic device as in-flight entertainment for no additional cost other than the initial cost to purchase the device. I can live without more attentive service and a wider seat for 13 hours, as I have done it before.

Does the future portend more of the pricing model of a Spirit Airlines, where you can expect to pay up to $100.00 each way for the optional privilege of placing the bag you carried aboard the aircraft into an overhead bin on airfares as low as $11.00?

The funny part is that even though I can live without many of the amenities offered aboard aircraft during flights — whether they cost extra or not — I am not thrilled about flying an airline with policies similar to those of Spirit Airlines, which appears to be having the last laugh…

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Comments (Showing 7 of 7)

  • johnep1 at 5:38pm May 09, 2013

    “Is À La Carte Fees”

    Is piss poor grammar the future of the US? Is that bad?

  • Brian Cohen at 5:47pm May 09, 2013

    The original title had to do with the concept of à la carte fees — which is singular — and not the fees themselves, which are plural.
    Accordingly, I fixed the title. Thank you for your feedback, johnep1.

  • starflyer at 7:01pm May 09, 2013

    I do not fly Delta because I believe they are very deceitful about their frequent flyer program, claiming it to be “best in class” then delivering a worst in class program.

  • RustyC at 7:05pm May 09, 2013

    Let’s not forget that the base fares have ALSO been rising of late, thanks to less competition among legacies and their deliberate attempts to limit supply to push up fares. They’ll charge whatever they can get away with there regardless of all the nickel and diming to make people pay even more. So it’s not as if the nickel-and-dime fees are necessarily going toward making the base fares cheaper…only LCC competition seems to be effective with that.

    Spirit has been adding some routes that would seem to be a direct shot across the bow of the legacies, like Atlanta-Dallas, and doing very well on them. The legacies have been reluctant to match fares so far because Spirit still doesn’t have the numbers of flights or seats, but the big opening for Spirit strategically has been fares increases and the cartel-like behavior from the legacies. Normally you might expect Spirit to follow something more like Allegiant’s playbook (targeting leisure travelers to Florida or Las Vegas), but Spirit has been adding some routes that in the past would get stiff resistance from legacies, and so far mostly has been getting away with it.

    As for whether the unbundling thing is good, the answer is generally no. It goes against transparency and makes price comparisons more difficult, and it’s a race to the bottom as far as inventing bogus fees and trying to push things just a bit farther. We should remember ValuJet did that, too, by cutting corners on safety and underpaying employees while making them think the company stock would make them rich. Spirit keeps trying to push the envelope with questionable practices like inventing a mandatory “passenger usage fee” and trying to make it look like a tax, or simpler things like seeing just how cramped they can make the seat pitch in planes. It all points up the need for regulation to set a floor, because without that floor it’s inevitable that Spirit or someone else will try to take things too far. There’s not enough competition anymore for markets to discipline the worst practices, and with just three legacies, Southwest and a few other LCCs, we’re heading back to “fortress hubs” and competition only on some routes.

  • MikeFromTokyo at 5:25am May 10, 2013

    It does not matter if one is referring to the fees themselves or the concept of the fees, whstever that means. The title should begin with “Are” because the subject is plural.

  • ksandness at 8:02am May 10, 2013

    The fee for checked bags is having an unintended consequence, in that everyone now tries to bring as much luggage as possible on board, clearly violating the size requirements in many cases, and if you board in the last half of the line, good luck finding space for your own (reasonably sized) carry-on. The FAs have to run around trying to stuff yet another rollaboard into the overhead compartment. On the other end of the flight, you’re trapped in your seat while the other passengers stand in the aisles struggling to get their monster rollaboards out of the compartments. I flew out of LHR shortly after the 2006 terrorism scare, when they finally allowed you to take one small carryon on board, and it was amazing to see how fast people were able to file on and off the plane. Everyone just reached under the seat to pick up their little bag and walked straight off the plane.

  • starflyer at 7:08pm May 10, 2013

    There is a small positive to a la carte pricing. When you’re promised something that is not delivered, there is now a clearer definition of value. For example, your flight is oversold and you’re told you’ll have to take the next one – that will be a $200 refund/credit please. You select an aisle seat but are moved to a middle – aisle cost $15 extra for a paying non-elite, so that will be a refund/credit of $15 please.

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