NEW YORK – Airlines are introducing a new bevy of fees, but this time passengers might actually like them.
Unlike the first generation of charges that dinged fliers for once-free services such as checking luggage, these new fees promise a taste of the good life, or at least a more civil flight.
Extra legroom, early boarding and access to quiet lounges were just the beginning. Airlines are now renting Apple iPads preloaded with movies, selling hot first-class meals in coach and letting passengers pay to have an empty seat next to them. Once on the ground, they can skip baggage claim, having their luggage delivered directly to their home or office.
In the near future, airlines plan to go one step further, using massive amounts of personal data to customize new offers for each flier.
“We’ve moved from take-aways to enhancements,” says John F. Thomas of L.E.K. Consulting. “It’s all about personalizing the travel experience.”
Carriers have struggled to raise airfares enough to cover costs. Fees bring in more than $15 billion a year and are the reason the airlines are profitable.
Airlines are now selling new extras and copying marketing methods honed by retailers.
Technological upgrades allow airlines to sell products directly to passengers at booking, in follow-up emails as trips approach, at check-in and on mobile phones minutes before boarding. Delta recently gave its flight attendants wireless devices, allowing them to sell passengers last-second upgrades to seats with more legroom.
And just like Amazon.com offers suggested readings based on each buyer’s past purchases, airlines soon will be able to use past behavior to target fliers. “We have massive amounts of data,” says Delta CEO Richard H. Anderson. “We know who you are. We know what your history has been on the airline. We can customize our offerings.”
Other airlines are experimenting with tracking passengers throughout the airport. In the future, if somebody clears security hours before their flight, they might be offered a discounted day pass to the airline’s lounge on their phone.
“We want to get back to a point where people feel like travel isn’t something to endure, but something they can enjoy,” says Bob Kupbens, a former Target executive and Delta’s current vice president of marketing and digital commerce.
Most passengers select flights based on the lowest base fare. The online travel industry plays up that price sensitivity with sites named CheapOair.com, CheapTickets.com and InsanelyCheapFlights.com.
When airlines try to raise fares, they are met with resistance. In the last three years, airlines have tried to increase fares 48 times, according to FareCompare.com. During 29 of those attempts, bookings fell enough that airlines abandoned the increase.
Most fares today don’t cover the cost of flying. While the average domestic round-trip base fare has climbed by 3 percent over the last decade to $361.95, when adjusted for inflation, the price of jet fuel has nearly tripled.
U.S. airlines collect more than $6 billion a year in baggage and reservation change fees. They also collect $9 billion more from selling extras such as frequent-flier miles, early boarding and seat upgrades. Together, the fees account for 10 percent U.S. airlines’ revenue.
Without the fees, experts say, fares would be 15 percent higher. “You’re either going to go out of business or find a way to cover” costs, says Robert E. Jordan, Southwest Airlines’ executive vice president and chief commercial officer.
Airlines now alter fees based on demand. United used to sell its Economy Plus extra legroom seats for one price per route. Today, aisle seats cost more than middle seats; prices are higher on popular flights.
That change in thinking has helped United increase fee revenue by 13 percent this year. Airlines are also starting to bundle items. Passengers buy items they might not buy alone; it also simplifies the dizzying array of offers.
American offers a package for $68 round trip that includes no change fees, one checked bag and early boarding. Delta is experimenting with a $199 subscription that includes a checked bag, early boarding, access to exit row seats and extra frequent flier miles on all flights a passenger takes between now and Jan. 5.
Airlines say the fees bring a sense of fairness to the system. Why should a passenger with a small carry-on subsidize a family of four, checking suitcases?
Jamie Baker, an analyst with JP Morgan Chase, likens it to a meal at a restaurant. “The sides are not included in the price of a steak,” he says. “Airline ticket prices should reflect the costs incurred by the individual passenger.”