Fare Hikes on Domestic Routes
Airlines have started raising fares again, but that sometimes ends up being good news for the bargain hunter.

May Premium Traffic Monitor Shows Steep Declines
Thought things were looking better? Not in the premium world. It’s still ugly out there.

Four Airlines Report Earnings, Three Post Profits
Three airlines posted profits yesterday on paper, but nobody is really optimistic these days.

Allegiant Makes $38 Million Despite Dramatic Fare Drops
Allegiant’s at it again. They had a great quarter, but how they got there is more interesting than the bottom line itself.

JetBlue Firing on All Cylinders With Q2 Profit
It was a good Q2 for JetBlue, so let’s forget about all the negatives out there and bask in some decent results.

On Friday, Southwest announced it was adding a couple fees and increasing another. For most airlines, a Friday that sees a new or increased fee would just be called “Friday” but for Southwest, it creates some shockwaves. These fees are actually pretty friendly, and I can’t imagine anyone complaining, but the attention paid to this move shows just what kind of predicament Southwest finds itself in. And I’ve got a controversial suggestion.

But first, let’s talk about the three changes made on Friday. They are:

• Small dogs and cats will be allowed onboard for the first time for $75 each way (American charges $100)




• Unaccompanied minors (kids between 5 and 11 traveling without an adult) used to fly without an extra charge, but now they’ll have to pay $25 each way (American charges $100)




• The third checked bag will now cost $50 instead of $25 (the first two are still free)

Like I said, these are hardly offensive charges. The pet fee is great, because it’s an additional option for those with small animals that wasn’t there before. The unaccompanied minor fee also makes sense. There is a cost to providing extra attention to children traveling alone, and $25 seems quite fair. And charging $50 for a third bag? Please. Anyone who is offended by that has never flown another airline and probably packs too much anyway.

These fees, however friendly they are, aren’t going to actually generate a ton of money for the airline. Southwest has made it clear that it needs to increase its revenues. In a rare corporate-speak moment, CEO Gary Kelly wrote in a blog post, “it is our fiscal responsibility to our Employees, our Customers, and our Shareholders to maximize our existing and potential revenue opportunities.”

The key for the airline now is to find ways to add fees that it thinks customers will find to be fair. In that same post, Gary says, “We truly believe in setting the right Customer expectation and not charging for those amenities that a Customer would ‘expect’ to get for free.” As a traveler, I appreciate that. But is there any low-hanging fruit that they could tweak to have a big revenue impact?

Yes. The change fee, or lack thereof.

I’m fairly sure that anytime the words “change fee” are put together, a collective gasp wafts out of Southwest’s headquarters. Southwest doesn’t do change fees, but I would argue that a change fee is in line with their strategy.

What traveler expects not to pay a change fee? A frequent Southwest traveler, yes, but not the rest of the world. Think about a $25 change fee. There are limited costs to Southwest for someone changing their itinerary, especially at the last minute. So would anyone really balk at a $25 change fee? Or what if you only charged the fee for changes within 7 days? The cost to the airline is the inability to resell that seat if it happens to close to departure. That seems like a fair fee to me.

Anything above $25 is too much for now, and certainly the $150 fee most airlines charge makes me cringe. But a $25 fee is enough for Southwest to be able to increase its revenues while still enabling customers to make relatively easy and inexpensive changes. I think this fits within what they’re trying to do.

What do you guys think?

You know what time it is, kids? That’s right, it’s Ask Cranky time! (I need to get out more often.) There have been some great questions coming into the inbox lately. Please keep it up, as I’m always more than happy to answer them.

I’m traveling from ROA->SFO in June and SFO->BOS a week later in on UA, and I bought a ticket last week for $456. Today, that same fare, on the same flights is $95 less. That makes no sense to me. Are the UA systems watching minute-to-minute demand for the legs of that trip and ramping up the price as the demand goes up? As demand goes down, do the prices the go down? How can they plan any sort of revenue stream for this? I understand the need to maximize their income, but part of the problem, as I see it is that the flying public sees stuff like this and doesn’t know how to plan. Would the the airlines just be better off just setting a seat price and sticking with it?

Bob from Virginia

Ah yes, the fare question. It’s something that comes up a lot but rarely is there a satisfactory answer. There is definitely a lot of voodoo involved. Actually, it just involves a dart board and some beers. (I kid, I kid.)

The reality is that those working in the world of revenue management understand the way pricing works, but those on the front line who are dealing with customers most often aren’t really given that information very well. So it does end up with this sort of “black box” aura to it. In reality, it’s two forces working together that cause the changes you see.

There is pricing and then there is revenue management. Sometimes they’re handled by the same person and other times they’re separate. The pricing guys (what I used to do) set all the fare levels and put them in separate fare “buckets” that are usually not seen by the public. (You can see them, but it probably won’t mean much to most people.) The revenue management guys and their fancy systems then decide how many seats to sell in each bucket on every flight.

Usually not much changes until you’re about 3 months out from departure. Then these system kick into gear and start figuring out how many seats to sell on each flight using all different kinds of factors. This will adjust as time goes on. For instance, if the system sets a limit and then sees that a flight is booking faster than predicted, it may clamp down on the number of cheap seats out there because demand is higher than expected. On the other hand, if it’s really slow to sell, the system may open up more cheap seats to stimulate demand.

On your ticket, you could have seen one of a few things.

• It’s possible that it was simply a pricing change. Either a sale fare came out or a regular fare was changed for a variety of reasons, and that’s why you found a lower fare.




• On the other hand, it could have been a revenue management change. Maybe the system realized that the higher fares weren’t selling very well so it opened up the lower fare buckets and the price the public sees went down.




• You could also have just been a victim of circumstance. When you bought, there may have been no seats in the lower fare class available, but someone could have canceled their seat and the cheap fare opened up again without any input from the airline.

For most airlines, the goal of maximizing revenue doesn’t take into account the impact on the customer of rapidly changing fares. More transparency would be nice, and some airlines have moved that way. But previous attempts to simplify the system have failed. American tried it in the early 1990s with only four fare types, but that blew up into a massive discounting brawl and fell apart. More recently, Delta tried it as well with Simplifares, and that quietly disappeared.

Some airlines, like Southwest, have prided themselves on transparency, but over the years they have become less and less transparent like the rest. The airlines that just post a fare and stick to it are usually the ones that end up out of business because they can’t compete.

Air Canada has now swept out its top management and it’s trying to do what it can to avoid running out of cash. I’m sure a lot of work is being done on the finance side, but I’ve been waiting to see what they’d be doing on the revenue/promotion side of things with this new team. The first move? A low fare guarantee for those who book on the Canadian version of Air Canada’s website. Lame.

They say it’s “industry-leading,” and that may be the case in Canada, but it’s pretty similar to most of the ones that have come and gone in the US over the years. That being said, Air Canada’s fare structure makes it even harder to use than most. If you buy a ticket on AirCanada.com (Canadian version only), you have 24 hours to find a lower fare elsewhere. If you find it, you report it online and get a $50 credit plus the difference in fare. One catch. That lower fare has to be within the same fare bucket.

You’ll remember that Air Canada has a branded fare bucket approach (that I love). Tango fares are the cheapest and come with a certain set of benefits, and it moves up from there to different buckets with different benefits. So if you bought a “Latitude” fare, you would have to find another Latitude fare for cheaper somewhere else. The only problem is that I don’t know of another website that breaks down Air Canada’s fares that way. So good luck.

You could always check with a travel agent to see if there’s a lower fare around, but that’s probably the only place you could do it across all fare buckets. (And who is going to do that, anyway?) I seem to remember reading that a lot of people upsell to higher fare classes, so this may be a nice marketing message, but I’d imagine that few people will actually be able to take advantage of it. That will just confuse and annoy people, and that’s not a great way to do business.

I hope they’ve got more up their sleeve than this.

A piece in the Wall Street Journal yesterday noted that Spirit is planning to start charging a PUF, or Passenger Usage Fee, for anyone who doesn’t book their tickets at the airport ticket counter. Even though the author said it was coming in the future, it looks like they didn’t waste any time, because it’s already out there. The article makes it sound like this is a new invention, but Allegiant has been doing it for quite some time, as those who read the comments on this blog would already know. . . .

From the checks I did, it appears that this fee is $4.90 each way per person. So, for a family of four traveling roundtrip, this could be a nice chunk of change. The fee will be attached to any booking that’s not made at the airport ticket counter. This is the same scheme as the “convenience fee” that Allegiant tacks on to its tickets. It makes no sense from a cost reduction standpoint so it’s frustrating. But, it does make sense from a revenue standpoint – people aren’t going to go to the airport and wait in line for something like this. And that’s why this kind of fee will stick with carriers like this.

It’s my understanding that they couldn’t put this on every single itinerary. It’s actually not on flights to Colombia and Panama because it’s not allowed by the governments down there! But the rest of you will get stuck with it unless you head on in to an airport to buy.

It’s very interesting that the Journal article notes that Spirit had to come to terms with the feds on using the fee, because the first attempt to use it was considered deceptive. I haven’t heard that Allegiant has had any trouble with it, so I assume that they’re being more upfront about it than Spirit here. But the result is the same – another fee.

Those who know Spirit will not be surprised by this at all. It’s par for the course for an airline that wants to advertise extremely low fares and then pile on extra charges all around. It’s very much like Ryanair in that way, so just make sure that you understand how they operate when you decide to fly with them. Assume they’ll charge you for everything, and you won’t face any unexpected surprises.

My guess is that we’ll see even more of these types of fees if they can get away with it. Maybe they’ll start charging a fee to use a jet bridge to board? Or perhaps they’ll charge a fee for not being subject to a body cavity search at security. The opportunities are endless.