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Sorry, Canada. Your Westjet just decided to start charging standard passengers for the first checked bag. One would think that would give rival Air Canada in an advantageous position with consumers. But no. Almost as if the airlines were not in competition but in league, Air Canada immediately sprang its own $25 fee on customers. Both airlines will start charging feeds to you lowly economy-fare types as October rolls into November.

The news goes from depressing to ominous: As soon as the fees were announced, the stock price of both airlines shot up.

When airline stock prices zoom skyward on a more reliable schedule than the airlines themselves, guess how long it will take for the few remaining no-fee baggage holdouts to appease their shareholders?

Since putting a la carte fees in place, U.S. airlines have gone from economic sob story to cash machines, earning about $6 billion a year off assorted henpecking fees. The least popular U.S. carrier in terms of service and reputation, the dreaded Spirit Airlines, is first on the list when it comes to profit margin.

How will the airlines ever care about improving service with an outcome like that? 

Your bags used to fly with you for the price of your ticket. It was a simple structure. But the airlines, pressured by the Lowest Fare Wins game that plays out on the major booking sites such as Expedia and Kayak, changed the rules. They kept the price of the ticket more or less the same, so that they would still show up on top of the search engines, but larded the back end with a welter of extra fees, so that they'd earn more cash without appearing as if their prices had substantially risen.

And customers, having once been massaged into feeling pity for the money-hemorrhaging airlines, went along with the change as something that was for the best for the industry. It was a brilliant PR maneuver that had Americans willingly allowing the poorer product to win in the marketplace.

Now, even the airlines that offer a free first bag are unlikely to continue to capitalize on that service for competitive reasons—not when there are higher stock dividends to stuff in their shareholders' pockets. What ought to distinguish an airline and make it more appealing to consumers is, from an investor's point of view, an albatross around its neck.

The Chief Financial Officer of Southwest Airlines, one of the last American holdouts, was quoted this week as saying "We have no plans today to charge bag fees." Notice the operative word today. Southwest intends to find other ways to grow its revenue that don't involve bleeding customers with fees, but even it will not promise the demise of the baggage-included flight.

For its part, the other holdout, JetBlue, will lose its customer-advocate CEO Dave Barger in February, and when it comes under new guidance, it's a strong possibility that the airline will choose to appease shareholders with more fees. It has already added a business class-style class of service to some flights—something antithetical to its stated philosophy when it was founded more than a decade ago—so even at JetBlue, the writing on the wall would seem to portend more pain for the passenger.

Now, to get out of baggage fees, you must fall into a privileged class such as carrying an overcharged business class ticket, earning elite status by flying many trips with the same airline, or carrying a special credit card with a sizable annual fee.

It's a wealthy man's world. Increasingly in the world of travel, you have to have money to save money.



Tags: airlines, fees, airfare, air canada, westjet, jetblue, southwest

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