Yes, Airlines Make A Fortune On Airline Fees. But Would You Want Less?

The Sun Sentinel reports (here) the latest data from the U.S. Department of Transportation that shows U.S. airlines tallied over $1.45B in passenger baggage and change fees…in the first three months of 2012!  Delta was the number one fee collector, followed by: United, American, US Airways, and Spirit.  What’s interesting is that Southwest Airlines which touts no bag fees (and did place last) still managed to take in $7.7 million.  Yes, airlines make a fortune on airline fees, but is it not even a little bit justifiable?

Putting It In Perspective

If Soutwest Was Any Cheaper
If Airlines Made Any Less Money

This is a lot of money.  But is it truly unjustified?  It seems that the default answer among travellers is “of course it is!’  The Sun Sentinel above even has a section devoted to it (http://databases.sun-sentinel.com/news/broward/ftlaudairlinefees/ftlaudairfees_list.php) as a ‘watch dog’ type of service where the fees are listed.

While the general public may be unhappy about fees, the margins on airline profit over the past three years have been razor thin (most were not profitable for the majority of the past 10 years), with an average net profit of just 3%.

So it seems that the entire profit margin of an average U.S. airline (excluding Southwest) comes mostly from fees.  Meanwhile, the public still expects the airlines to have a perfect safety record, luxurious new planes (with lots of room), be always on time, have in-flight service, and then still have incredibly low fares.

Air Surgery

So where does an airline give?  Perhaps the fees look high, but if they make up the bulk of an airline’s low profit, would you want it any other way?

Like brain surgery, I would NOT want a cut-rate surgeon who offered incredible discounts to do an operation when my life was in the balance.  Airlines also have our lives in the balance (for some reason most people seem to overlook this), yet we are perfectly happy to low-ball and discount airlines at our personal convenience.

Now one might argue (correctly) that a consumer wouldn’t ‘elect’ to have brain surgery, but one can easily opt out of flying.  That would put the onus on airlines to be competitive.  But in either case, you’d still expect high quality without cut corners.  When you’ve already made the decision and you’re in the moment, whether your cranium is cut open on a table, or your butt is 38,000 feet above the earth (over 7 miles) and moving over 500mph, each situation would seem rather similar.

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Alternative Courses of Treatment

Airlines have obviously incorporated these fees because they can.  It seems that the market voted loudly that high fares are despised while high fees are tolerated (people still fly and the market is even growing).  So the airlines will continue.  And if fees help contribute to the expectations that passengers have by providing ‘services’ like safety, then what’s the complaint?  Sure, fees should not approach usurious levels, but if they did what would happen?  The total price would be prohibitive and people would stop flying.

There are, of course, alternative models:  1) people stop paying higher fares and higher fees and fly less, causing more of the airlines to merge or go bankrupt.  That would create less competition, and allow the surviving companies to raise their prices; or 2) we go back to regulated airlines where the government plays a big role (meaning even more tax dollars are used).

Delta petroleum
Possible delta fuel logo?

Or…

There is a third option: airlines could start getting into other areas of business that are more profitable or help them cut costs in some way.  And that’s happened.  Delta bought an oil refinery from ConocoPhillips.  Hopefully that’s not a distraction to them from their core business of flying people around safely.  We shall see…

Regardless

Either way, some price, somewhere, would go up.  In the first case it would be fares, in the second it would be more government imposed fees (or taxes).  And while the government plays a vital role currently by subsidizing expensive (and necessary) public services like air traffic control (no private company owns the airspace), I don’t think anyone wants to see them running an airline.