Oil has dropped to $100 a barrel, yet airline fees are here to stay.When oil was $140 a barrel, it was understandable that airlines began to add "fuel surcharges" for frequent flier tickets. At $130 a barrel, Airlines such as American, United, and US Airways added on a fee for each checked bag per flight. This was blamed on fuel costs.
The price of oil has dropped to $100 a barrel, yet airline fees seem to be here to stay. Airlines continue to say that these fees are based on current oil prices. The price of oil is by far the largest expense in any airline.
Airlines have long been looking for a way to extract more revenue from customers in areas other than fares. They seem to have found the answer, and customers are willing to pay. Continental airlines will generate $100 million annually from a 15$ checked-bag fee alone. United could make $700 million just in add on fees next year. J.P. Morgan estimates that with all fees included, the new airline business structure will generate an additional $3 billion in revenue. Keep in mind the airline industry has never earned more than $5.3 billion in a year.
Jamie Baker, a J.P. Morgan airline anayst says, "It was only the reality of $140 oil that gave the U.S. inustry the courage to pursue a strategy they wanted to pursue, you hold onto it as long as you can until competitive pressures force you to back off." This strategy includes a new business model that is completely a-la-carte.
What to expect? A whopping $2 for a soda, coffee or a bottled water. $15 for a checked bag. No dinner served in coach. Expensive snack packs. And fees, fees and more fees.
Read the WSJ article here.
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