Fees Help U.S. Carriers Log Four Consecutive Profitable Years

By Susanna Ray
Source: Aviation Week & Space Technology

And a necessary part at that, especially after almost every U.S. airline has undergone bankruptcy restructuring, “some more than once,” Derchin says. “The industry was forced by necessity to change the way they were operating. . . . This will be the fourth consecutive year of profits. They're going to make quite a lot of money in 2013 in a slow-growing economy with oil prices high, so that is pretty good.”

Bookings look solid for the Thanksgiving/Christmas holiday period, Derchin says, so he expects fourth-quarter results to also improve from last year.

Most airline executives, on third-quarter calls with analysts, talked up the anticipated growth in extra charges.

Delta CEO Richard Anderson said the carrier expects “significant upside” for ancillary revenue going forward. United Airlines' chief revenue officer, James Compton, noted that the segment rose 16% in the quarter from a year ago, to more than $20 per passenger, and the airline is “well-positioned” to exceed its 9%-increase goal for the year.

Alaska Air, which was slow to impose baggage fees and then priced them lower than competitors, saw ancillary charges rise 16 cents per passenger in the quarter, to $11.94. Executives say they are raising prices for some services and looking for ways to boost the figure to help mitigate cost pressures because of increased competition from Delta and United.

Some carriers, including American and United, are moving on from unbundling and are experimenting with ways to rebundle, offering various price points that include different types of services or selling packages with a year's worth of free checked bags or lounge access, Mann says.

It may be years before consumers show a clear preference for fare and fee systems, Mann warns. Until then, it could behoove Southwest to wait and watch its competitors try new models.

“I'm not sure there's a first-mover advantage here, in fact there may have been some high-profile failures,” such as charging for carry-ons, Mann notes. “As Bob Crandall [former president/CEO of American Airlines] used to say: 'Pioneers sometimes get arrows in their heads.'”

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