Fees, cheap fuel help lift airline profits sky-high
Airline profits are at record highs, thanks in part to high demand and low fuel costs.
Southwest stated it would save approximately $1.2 billion this year on fuel, and the airline recorded a $600 million profit in the second quarter. American made $1.7 billion in the second quarter, and United and Delta made more than $1 billion apiece.
Added fees are another reason the airlines are making big profits: change fees, checked bag fees, international fuel surcharges and more. A recent U.S. Senate report launched by Florida Democrat Bill Nelson takes aim at these fees and calls for the airlines to make them very clear to travelers before they purchase tickets. It also recommends that these fees be in line with what it actually costs the airlines to provide services such as changing a ticket or handling luggage.
Change fees are particularly expensive on nonrefundable tickets, and these are the tickets most people buy because they are significantly cheaper than tickets that allow a change without a fee. The legacy carriers are charging $200 to change or cancel a domestic ticket and $300 or more on international routes.
I call round-trip tickets on American, Delta, United or US Airways that cost less than $200 throwaway tickets. In most cases, you are better off just starting over rather than trying to change or cancel. If you change your ticket, not only will you be charged the change fee, but you’ll also have to pay any difference in the fare price if it has gone up.
If your original ticket is more than $200, you are probably better off calling to change or cancel so you can get a credit for the amount that’s over the $200 change or cancellation fee. The exception would be if a competing carrier is offering a cheaper fare. You’ll have to do some math to decide what the best deal is for your situation.
If you end up buying a new ticket, don’t forget to check the competition, because you may find a cheaper ticket. Remember you can get a credit for 100 percent of your ticket amount on Southwest’s nonrefundable tickets, so if you think you might need to change or cancel your ticket, fly on Southwest, even if the fare is a little higher.
The business traveler usually buys more expensive fully changeable and refundable tickets, and that traveler may change one ticket 10 times at no fee. This is why airlines oversell seats on heavy business routes.
Another area where airlines are making money off fees is checked baggage, which earned the airlines more than $3.5 billion in 2014. Recently, Southwest was charging $88 round trip to go from Dallas to Los Angeles, which includes two checked bags free. On a legacy carrier, you would pay slightly less for the fare, at $81, but you would pay $120 to fly two bags round trip. Even if you only check one bag, it will cost you $50 round trip.
Charging exorbitant change fees and expensive checked-bag fees are part of the airlines’ fuzzy math program. Do the airlines really lose hundreds of dollars when you make a change? For years the airlines included checked bags in the fare. Does it really now cost the airlines $120 to handle two checked bags round trip?
One of my biggest issues with airline fees are the fuel surcharges that are charged to Europe, which I’ve argued for years should be part of the base fare. Recently, airline fuel was selling for approximately $1.90 per gallon, and the airlines are making quite a profit off the airline fuel surcharge, which is $516 to most cities in Europe.
The fuel surcharge to Europe is even higher in business class, but it doesn’t cost the airlines any more to fly a business-class traveler than it does a coach-class traveler.
The Senate report recommends that the airlines charge bag fees that are in line with their actual costs. It also wants to limit change and cancellation fees to a reasonable amount that is less than the original fare and tied to how far in advance you change or cancel. If the airline can resell the seat, it shouldn’t be able to collect a hefty $200 fee.
These are recommendations I agree with, but I’d also love to see the international fuel surcharge issue addressed. With these fees, I think we all know the definition of skyway robbery.
Tom Parsons is CEO of www.bestfares.com.