What To Expect From Airlines Now That Oil Is $130 A Barrel
Scott McCartney, who writes the Wall Street Journal's "Middle Seat" column, has some thoughts about what consumers can expect from airlines, now that oil has hit $130 a barrel. He says that "he change in oil prices from a year ago to today translates into $24.6 billion in added fuel costs for passengers and cargo airlines on an annualized basis," which is more than the airline industry has ever earned-- its best year saw $5.3 billion in earnings.
So what now?
It's very difficult for airlines to simply raise prices to levels that cover their higher fuel costs. Raising prices chokes demand: If tickets get too expensive, business travelers make alternate plans, pick cheaper airlines or buy discounted tickets further in advance. For vacationers, if prices get too high, they don't buy or they switch to cheaper destinations. Airlines can price themselves right out of a sale.
So to avoid that, carriers have been slap-happy with fees added at the airport, not at the ticket purchase point. A family heads off to Disney because they got a good fare – then find themselves paying $300 extra at the airport in baggage fees. Fees are essentially fare increases that airlines hope won't choke demand.
But slapping fees on customers here, there and everywhere won't solve the problem. Airlines will have to make big cuts in capacity, eliminating flights that just aren't profitable with oil at $130 a barrel (as of Wednesday morning). Fewer flights means skimpier schedules for many travelers. More important, it means higher fares. The price of flying has to go up if airlines are to survive.
After AMR, the Deluge [WSJ]
(Photo: So Cal Metro )
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Comments:
The airlines will raise fares to whatever level is needed to ensure profitability. They can't lose money forever. If this translates into less people flying, so much the better. The poor service airlines provides is a result of too much demand for air travel. Many airports are carrying more flights on a daily basis than they can. This results in delays if there is the slightest bit of weather. The marketplace will seek its own level based on fuel costs and demand.
@ffmariners: Either that or de-couple the cost of fuel from the ticket price. The price of the seat is fixed at the time of purchase, the price of the fuel is determined at the time of the flight.
I don't mind the higher prices, as I expect that, but I'd rather the airlines were honest about it and just charged more for tickets instead of trying to sneak the fees past the customers.
what is up with that picture?!
What I'm wondering is where is the floor on discounted flights before those go out of business too?
In terms of customer care, I'd rather show at the airport good-to-go instead of getting banged for another $15-200. Expectations and transparency, right?
I say raise the base price to approach solvency, reduce flights to weird places (3 a.m.'s to bo-dunk PA, really?), create more higher-priced options for C-suite travelers, and kick my own ass for not investing in more fuel efficient vehicles when money was flowing more freely...oh, wait.
All the press right now is centered around the charges for checked baggage, but I wish airlines were more vigilant about carry-on baggage...I just got off a plane today after having to wait behind a woman trying to corral all FOUR of her bags.
Has Gerald Arpey (he of the stupid hair at American Air-liens)* undergone a pay cut yet for his obvious mismanagement of the airline?
*Intentional misspelling; now that they're charging $15.00 for the first bag, it would seem that they have a lien on your trip should you choose, to, you know, pack anything.
@B: If airlines actually charged what the fuel cost along with the other fixed costs, you'd pay several hundred dollars for a trip from San Francisco to Dallas. I'm in favor of this as well; it sits better with me than the nickel-and-dime approach they've taken.
Airlines are not "trying to sneak fees past the customers." They are upfront about the fees because they required to be by law; if you don't know about it, that's sort of your fault.
And I'd rather they not just charge higher prices across the board. If I can pack all I need in one bag, even a carry-on, I should pay less. Why should I subsidize those ladies lugging steamer trunks to Club Med?
Fees for number of bags, for the weight of the bags, etc., are perfectly legitimate.
Seems like it might make more sense to compare fuel costs to revenue instead of earnings. A quick search says industry revenue was $135 billion in 2000 and $120 billion in 2001.
Adjust for inflation and 9/11 as you see fit.
@WayDownRiver: The premise of your post sort of assumes that the fees are directly in proportion to the extra costs to the airline of hauling the luggage, etc. I don't believe there is any real evidence that there is. While I'm sure that each bag in the cargo hold DOES cause more fuel to be used, I'm guessing that the largest part of the fuel usage is a fixed cost related to moving the weight of the plane itself. I could be wrong about that, but I doubt I am. So it seems to me that fee-paying customers with multiple bags, etc are probably subsidizing people without bags, now.
The reason for bag fees is simple: every bag they have to carry for free is less cargo they can get paid to carry by FedEx, the Postal Service, etc.
@WayDownRiver:
You should subsidize it because the lady with the steamer trunks will no be hauling it through security and trying to fit it into the overhead bin. Charging for a 2nd bag was merely annoying. Charging for any checked bag is going to change the behavior of alot of folks. That's going to make your flight a whole lot less enjoyable even if you choose to pay the $15 and check your own bag.
I print my tickets out at home at my cost, I check myself in online then again at a self serve kiosk when I get to the airport, now I can only bring one bag which blows big time esp when I'm going to oregon and can buy stuff tax free. At this rate I feel like I should get some sort of kickback/discount since I have taken on the job of the ticket counter clerks. Now they want to fee me to death?! I know the cost of gas is going threw the roof but I honestly think a more people will just start traveling less.
The whole baggage fee thing to "save fuel" is a load of crap IMO. It just means people will carry on as much their junk as they can carry, which results in longer lines at security which equals more crabby travelers and longer lines for everyone, less room in the already over crowded cabin and everything that can't fit in the cabin ends up in the cargo area anyways.
Next airline innovation...pay toliets, oxygen masks and flotation device rentals.
Fees are the airline's version of pigovian taxes. Additional cost to the buyer to compensate for the negative externalities associated with lugging your butt and your bag 1,000 miles across the country.
Only, the money doesn't go to the government, it goes to the oil companies, who send quite a bit of it overseas.
@pixiegirl1: Me too. I keep expecting the airline to come up with a new bogus fee to charge me for the 'convenience' of avoiding the check-in lines.
I hope no airline execs are reading this...
I think the airline industry see the fees as a much better alternative than higher ticket prices.
Think about it:
1) You go online to purchase your ticket, you see the low price and you book. You get to the airport and pretty have to play those fees because you can't return the ticket without a loss.
2) You go online and see ticket prices set to compensate for fuel costs. You say screw it and stay at home.
@ironchef:
Pay toilets nice, I can see it now! I'll be sitting next to some dude who doesn't want to pay the fee so he's "reusing" the soda bottle he brought on *shudders*.
I think I would rather be bothered with fees for luggage. It'll encourage me to start packing lighter.
I'm STILL waiting for all those d-bags from a year ago that said "peak oil is a myth" to sheepishly apologize, but they're too busy downplaying the food riots.
I hate it when all the blame is placed on crude oil prices. Yes in contributes to the price of fuel, but from what I heard refinery capacity is a bottleneck. Thats where a majority of price increases in fuel come from.
I'd like to thank the asshat that thought "I will be the first person to go over $100 a barrell! Weeeee!"
Die in a fire, oil broker
It was shot with a very long telephoto lens, which compresses the perspective and makes things look closer together than they really are. The airborne airplane is closer to the camera than the one on the ground.
Even though I used to be a newspaper photographer (sports too, with long lenses), this one still tricked me for a second.
@MyPetFly: I blinked too. But I'm a photographer by hobby, and I realize it's from a 300-600 mm lens, in all probability, and an illusion (notice that the Delta plane is on a taxiway).
That said, the ridiculous price hikes area already driving people away, pun intended; I'm driving on Friday from STL to Minneapolis -- the fares to get there are astronomical and ridiculous and Southwest doesn't even fly there.
I'd hate to live there. What, do the airlines have to pay in solid gold bars for landing slots there?
I just got off a flight in San Francisco and there was some old lady dragging 4 suitcases and bags off the plane. How she got them on the plane I don't know but it was a zoo. Expect more of these shenanigans now that people are being discouraged from checking luggage and instead dragging everything into the overhead.
@boandmichele: The Northwest plane and the Delta plane loved each other very, very much, and when two planes love each other....
Crap, sorry for the double post...
Wait! I know! The government can take over the airlines! I mean, look how great they are doing with AmTrak!
@boandmichele: In an effort to lower costs, NorthWest are piggybacking their planes on other flights. :-D
They are upfront about the fees because they required to be by law
Do they include their fees in the prices they give to online travel agents? Can I compare fares of several airlines from one destination to another including fees?
@youbastid: I'm still waiting for people to realize the dead dino theory of oil is 1) not supported by the lab, and 2) is two hundred years old.
As for food riots, the ones in Mexico have a lot to do with the ethanol requirement. Because 400 pounds of corn only makes 25 gallons of ethanol.
So, at some point, it will be up to the policy makers to evaluate the situation and decide what kind of transportation policy we want. We do this from time to time: it was once decided that railroads needed to be regulated to provide passenger service; then highways were build with public money; then we decided to put public money into the airline infrastructure; and so on. Now, things are changing again: flying will be financially out of reach for more people than ever before, and even driving will become too expensive. We'll have to determine how we continue to make transportation available. More subsidies for airlines? A federalized airline? New subsidies for regional high-speed rail?
@hypochondriac: A year or so ago, a much larger proportion of the end price was indeed refining related. Today, refiners are hurting as much as the rest of the consuming sector. See link below.
After last year's stellar profits, American refiners are going through a traumatic period. In a time of record gasoline prices, some of them actually lost money in the first quarter, and for virtually all refiners, profits are down sharply.Experts say the refiners are caught in a double bind. The price of their raw material, oil, is rising because of strong global demand. At the same time, consumption of gasoline in the United States is falling as a result of slower economic growth and consumer efforts to conserve.
@Thaddeus: The problem with Amtrak isn't that it's government owned, but the lack of political will to make it worth a damn. While I don't think the success of the BOS-NYC-DC corridor can be replicated, it's not far fetched to think that other short-hop cities can be connected and be financially viable.
With the airlines, clearly, there is enough political will to keep the industry afloat - the legacy airlines wouldn't have survived otherwise.
I almost always checked my bag rather than use a carry-on, for the simple reason that it was more efficient. Carry-ons slow down security lines, they slow down the embarking/disembarking process, and...well, they create an additional security risk.
I know the airlines are hurting but I'd rather they be up front with higher fares as opposed to the nickel-dime approach.
@grebby: I'm just waiting for the day when its cheaper for you to FedEx your luggage to your destination... and they use your plane to do it.
...maybe just don't fly? I mean, how much business needs to be done like that anymore? At this rate, it'll be cheaper to purchase and air-ship video conferencing equipment.
I really got hammered booking our flights for this summer. PHL to Orlando got filled up pretty quickly and I had to switch to PHL/Tampa to keep things reasonable. $603 for three of us to fly down on a Saturday and home on Sunday, August 31st. Ouch! Not quite. Sure, it's more than the $290 PHL/MCO for the three of us when SWA first started flying out of Philadelphia. But I remember being quite happy with $200 r/t fares on Continental from Newark to Orlando in the mid-90's. So I can't exactly bitch too hard about $200 r/t this summer when a tank of gas is $50+ instead of $15.
@pixiegirl1: i travel the same way & would probably travel more if airlines catered to the "savvy" class. i do everything online, only take a backpack with me (hey, i'm a guy - i can fit a week's worth of clothes in there (esp. with the help of one of these). if i could get a discount for all the services i don't use (mailed tickets, skycap, counter check-in, checked bags, etc.).
@Thaddeus: you really have no idea. in 2001, we gave airlines a $15 billion bailout. amtrak doesn't see that kind of funding in a decade. less than $1.5 billion/yr for thousands of miles of tracks that span the country - & washington wants to cut that in half! new york alone spends almost twice that in highway spending every year. my point is, if we actually invested some serious money in rail travel, gas wouldn't be $4/gallon, we wouldn't be burning corn, & airlines wouldn't be charging $480/ticket + $300 in fees. well, maybe they would, but they wouldn't remain in business much longer.
@notallcompaniesareevil: awww! poor refineries! i feel the tears welling up inside. i need a tissue.
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i think it's time for someone to rethink the paradigm that exists today. for example, what if airlines subleased a portion of flights to 3rd companies? what if instead of deadheading flights, airlines rethink their travel routes to be more efficient? i'm sure if some intelligent people got together, they could find a workable solution.
I would rather they do this than normal pricing. It costs more to carry someone with huge heavy checked bags than a business traveler going carry on only. Now they just need to have realistic one-way only pricing for all the airlines as many people here will drive an hour and half to another airport just to fly back here to get on the same plane that has a 200$ cheaper ticket.
@spinachdip: The problem with Amtrak is time and price.
My sister lives in Albuquerque, NM and I live in D/FW, TX. To fly out to see her I can get a plane ticket for $178 or less. The trip takes about 1.5 hours.
To take Amtrak, the ticket costs $439. It takes 2.5 DAYS!! And if I want a tiny sleeper for the two nights I'll be on the train, add $250/night to the ticket price.
I love trains - always have - but I'd be pretty stupid to choose that as my mode of travel.
Well expect to get the middle seat more if the start reducing capacity.
Heck, I'll do you one worse, flights will be booked way in advanced and there won't be those last minute trips because there will be no seats.
@lmbrownmail: Although it does depend on your region. I used to take the northeast corridor whenever I traveled from NY to my mom's house in NH. Granted I had to switch from the train to the bus in Boston, but it was nice to be able to sit there and read in peace and quiet away from traffic jams. Unfortunately, Amtrak raised their prices to the point that it's a little too expensive (even with my student discount). Believe it or not, it takes me the same amount of time to get to Newark from Brooklyn and fly to Manchester (15 minutes from my house), take the bus from NY to boston to get on the bus to NH, or to take the train to the bus.
@mac-phisto: To add to that, part of the reason for the overcrowded skies is the overuse of regional jets. Those puddle jumpers take just as much effort and time to manage as a plane that can carry 5x as many passengers.
If we invested (realy invested) in high-speed regional rail (Chicago to St. Louis and Minneapolis, Philly to NY, etc.) we solve a few problems (gas prices, crowded airways, etc.) with one offering and the net costs to taxpayers would be the same or even less. Would you be willing to pay $125 RT to take a 2.5 hour train from Chicago to St. Louis and have 1/2 the security headaches? It would also create real competition for short distance travel and force airlines to either improve their product get out of the area.
@lmbrownmail: Well, like I said, if there was the political will (and common sense), it would be a more attractive option. There's no inherent problem with rail itself - it's just really underfunded, because the roads and the air get the pork.
so... no more airplanes?
And quite simply... if they raise prices to incorporate those fees many fliers will simply head to an a la carte airline.