Flying became more expensive. The last time we flew and whether I was American Advantage or not, there still was a fee to check bags. So we checked our bags outside of the terminal as it was easier and less expensive. There was never a fee outside of the terminal. Now there was. Once American put it into play, they started to charge. It was not a big deal to us. Overall, the airlines have a monopoly. And can get away with egregious actions. If one of the majors move, they all do. The author is talking about more than just airlines though. Other businesses are adding fees, Loaded Up With Junk by Hassan Ali Kanu The American Prospect IdeaWorksCompany consulting firm president Jay Sorensen has had great influence on the spread of
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Flying became more expensive. The last time we flew and whether I was American Advantage or not, there still was a fee to check bags. So we checked our bags outside of the terminal as it was easier and less expensive. There was never a fee outside of the terminal. Now there was. Once American put it into play, they started to charge. It was not a big deal to us.
Overall, the airlines have a monopoly. And can get away with egregious actions. If one of the majors move, they all do.
The author is talking about more than just airlines though. Other businesses are adding fees,
Loaded Up With Junk
by Hassan Ali Kanu
The American Prospect
IdeaWorksCompany consulting firm president Jay Sorensen has had great influence on the spread of unbundling and junk fees in the airline industry. It has probably influenced other industries as well.
Sorensen says his job is to “help airlines to make money from creating fees.” He’s careful to point out carriers do the actual work of implementing pricing strategies and good business means well-served customers.
IdeaWorksCompany doesn’t only present reports and research on “ancillary revenue.” It even holds an “ancillary revenue master class.” A kind of a junk fee boot camp, where Sorensen and others educate airline management on the latest innovations in pricing.
Sorenson; “I think we’re having this conversation today because of my involvement and my advocacy for this. I’ve had a big impact,” adding the ancillary revenue concept spread “sometimes far too aggressively.”
Broadly speaking, airline junk fees were introduced in the 1980s, after Congress removed federal authority over market entry, routes, and fares via the Airline Deregulation Act. Legacy airlines reacted in part by adding optional services to make them competitive with new, low-cost carriers, but also by decoupling services that used to be covered by the ticket price.
In the early 2000s, airlines began announcing “fuel surcharges,” explaining that they were needed to cope with rising costs of jet fuel. British Airways introduced its first fuel surcharge in 2004, for example, an added $4 a flight.
Yet just seven years later, British Airways was charging $420 extra on longer trips, as former Federal Aviation Administration (FAA) chief counsel Mark Gerchick writes in his 2013 book, Full Upright and Locked Position. In 2012, an analysis by travel management company CWT showed the fuel surcharges had risen twice as fast as oil prices between April 2011 and May 2012. Only a handful of U.S. airlines actually decreased surcharges, despite drops in fuel prices during the period. As The New York Times reported, it had turned into a way to increase profits and a money grab, in short.
That pattern has repeated itself in the industry.
For example, charging people extra for assigned seats is nearly 100 percent profit. Ticket change fees can be all profit too, since the process is now automated. Travelers pay a 7.5 percent tax on airfares, in order to support air travel infrastructure. But the fees that carriers charge for “extras,” or just because they can, are exempt from the tax, depriving the government of money they’d otherwise get.
American Airlines became the first legacy U.S. carrier to begin charging fees for all checked bags in 2008. Those fees were also explained as a way to help with fuel prices and other rising costs after the Great Recession. Yet, they’ve mostly become the industry standard well after the economy rebounded.
All of that ancillary revenue is “deliciously profitable” for airlines, Sorensen said.
“What’s missing from that equation is some kind of improvement for the consumer.”
A spokesperson for Airlines for America, a lobbying group representing the industry, told me airlines are committed to “clarity regarding prices, fees and ticket terms,” adding that “the federal government forces airlines to bury the cost of government taxes and fees” in the total cost. The group added that ancillary revenues were at historic lows, and average domestic round-trip fares were 14 percent lower in 2023 than in 2010.
Still, the government certainly doesn’t “force” airlines to “bury” any other fees within their total costs. And according to Sorensen, Airlines for America’s ancillary revenue calculations are possibly incorrect, in part because they don’t include fees for assigned seats. A new and major category in their definition of ancillary revenues.
Earlier this year, most of the major U.S. airlines raised their baggage fees from $30 to $35 and added another $5 if travelers decided to check at the airport rather than in advance, even though the bags are going to the same place. Airline executives claimed this was because it took more manpower to check at the airport. Anyone who has been to an airport lately knows check-in activities happen primarily on a self-service kiosk.
Perhaps the most absurd example came in 2011, when the FAA’s authorizing legislation expired for two weeks due to a squabble in Congress. This meant that the agency could not collect that 7.5 percent federal airline ticket tax on travelers, costing the government roughly $30 million a day.
Several major airlines were eager not to let the crisis go to waste.
They raised their base fare to the level of what the ticket tax would normally cost, pocketing the difference instead of turning it over to the government or passing along savings to customers. A few airlines even told customers that they would have to petition the IRS for a refund if they wanted to get their money back.
The Business Model originated by the airlines is being used all over the economy.
Loaded Up With Junk, The American Prospect, Hassan Ali Kanu