Airline fuel surcharges? … What airline fuel surcharges?

Fuel prices have pretty much doubled over the past year and US airlines have been particularly badly hit, as mostly they weren’t hedged against price increases. In the past when that’s happened, the dreaded “fuel surcharge” got added to the fare. Internationally some airlines tried to disguise it to a price sensitive market by not including it in the headline fare; but as consumer rules tighten airlines have been forced to find other ways of compensating for the substantial added bottom line cost.


Summary:

  • Fuel prices have pretty much doubled over the past year and US airlines have been particularly badly hit, as mostly they weren’t hedged against price increases;
  • In the past we would have seen ‘fuel surcharges’, but tightening consumer rules mean airlines now have to find other ways of compensating for the added cost;
  • In North America this has seen most carriers raise their baggage fees for mainly domestic flights and services into the Caribbean.
  • Southwest Airlines has been the standout operator by refusing to add baggage fees, but could that be a decision that may need to change in the future?

Over the past couple of months most North American airlines have raised their baggage fees by USD/CAD5 to USD30 for the first checked-in bag and to USD40/USD50 for the second checked-in bag.  It has been a uniform increase across the continent, with each airline charging almost the same price, mainly on domestic/Caribbean routes.

Otherwise international fees mostly remain unchanged at this stage, barring WestJet which specifically included its international services.

Here’s more details…

  • American Airlines announced on 20-Sep-2018 plans to raise the price of first and second checked bags by USD5 each from 21-Sep-2018.
  • Delta Air Lines announced a few days ago, via its website its increased baggage fees with a spokesman noting: “Delta offers a variety of optional products and services and routinely makes fee adjustments”.
  • WestJet announced the change in late Aug-2018, taking effect from 24-Aug-2018 for domestic travel and effective 28-Aug-2018 for international destinations.
  • Air Canada increased baggage fees effective from 21-Aug-2018.
  • United Airlines announced during Aug-2018 that its checked baggage policies were to be revised from 31-Aug-2018. The airline explained: “We are making adjustments to our checked bag fees in select markets – most of which have not been changed for the past eight years”.
  • JetBlue Airways announced the fee in late Aug-2018, effective 27-Aug-2018.

JetBlue CEO Robin Hayes was really the only one formally to connect the increase to rising fuel prices but analysts across the board also made the connection. Mr Hayes said: “Fuel prices are up over 33% this year. You end up having to pass those on. We’re about low fares. We hate increasing fares. But we had a couple of fare increases, and then we made the decision to increase the bag fee to USD30 if you don’t buy it in the fare.”

Let’s not forget oil prices spiking at USD100 per barrel a decade ago was the catalyst for larger US airlines opting to initiate bag fees, which remained firmly in place once oil prices dived back down into the USD40 range. Baggage charges were the first phase of an ancillary revenue push that has morphed into American, Delta, United, JetBlue, and soon, Alaska all introducing fare tiers to improve revenue management and increase their topline revenue.

How long can Southwest hold out?

The biggest standout when it comes to baggage charges is Southwest Airlines. In Aug-2018, chief revenue officer Andrew Watterson affirmed the airline’s position on baggage and change fees, stating: “Bag fees and change fees are really big irritants; they piss the customer off” (Skift, 15-Aug-2018). He pointed out the airline wants “repeat” customers, adding: “And it doesn’t cost 25 bucks or 50 bucks or 100 bucks to check a bag or have a carry-on bag. Really that’s just a way to get more revenue out of the customer”.

The analysts don’t like it but the LCC granddaddy has painted itself into a corner with this one. It’s a big differentiator, but it comes at an equally big cost.

Meanwhile Alaska Airlines is also yet to increase its fee from USD25 to USD30 but it might be something we hear about in the near future.