Are Consumers Benefiting From Airline Fees?

jim davidsonIt's hard to go a day without reading an article about how airlines are "nickel-and-diming" travelers with new fees. It's a popular sound bite. But what is the real impact of these "fees" on passengers? This is the question posed by Jim Davidson, president & CEO of Farelogix, and an outspoken champion of implementing airline direct connects and other often controversial technology solutions for the travel industry.

In a recent blog post, "Ask the Question?", Davison argues that the numbers suggest that travelers are seeing considerable savings due to airline ancillary fee policies as compared to a decade ago rather than paying more for air travel than they used to. The blog post, Nickel-and-Dimed to the Tune of $2.3 Billion in Consumer Savings, takes a fresh look at an ongoing challenge to travel distribution.

"Believe it or not some passengers today are opting to pay additional charges for things like checked baggage, premium seating, and priority boarding to add value to their trip experience. Other travelers enjoy these services - called ancillary products and services - complimentary based on frequent flyer status, affinity credit card usage, and other variables," Davidson says in  his analysis.

"Some of these services used to be included in the price of a fare, such as checked bags, while some of these services didn't even exist ten years ago, such as onboard Wi-Fi. Undoubtedly, some travelers feel that the airlines are squeezing every last penny out of them, and they are paying more for air travel than they used to. However, the numbers suggest that travelers are seeing considerable savings as compared a decade ago."

"First, we'd like to address some misleading figures that are out there. One is that the airlines collected $22.6 billion in ancillary revenues from consumers in 2011. It's true that airlines worldwide collected a total of $22.6 billion in ancillary revenues. However, domestic airlines collected $14.2 billion of the $22.6 billion and, more importantly, half of that ancillary revenue came directly from money paid to the airlines by credit card and other companies for airline affinity programs, and thus was not paid directly out of consumers' pockets. Of the actual remaining service revenue ($7.1 billion) collected by the airlines, much of it was from products and services that have been willingly paying for by consumers for some time, including those fees for ticket changes, pet carriage, unaccompanied minors, etc."

Using this information, Davidson said he compared two years of air travel spending - 2000 and 2011 -  and converted all dollar amounts to 2011 dollars to get an apples-to-apples comparison of air travel spending.

In 2000, the total amount spent on domestic air travel was $124 billion (including money spent on baggage and change fees), he calculated.

"Looking at 2011, the total spent by travelers on airfare was $114.6 billion, which is interesting as there were over 10 million more tickets sold in 2011 compared to 2000. If we then add the dollar amount that consumers actually paid to the airlines in ancillary charges in 2011, we get a total $121.7 billion paid by consumers for air travel in 2011. Thus consumers actually paid $2.3 billion less on air travel in 2011 than they did in 2000."

"By decoupling certain services from the price of the fare, airlines have saved consumers a significant amount of money. Today, consumers only pay for the services they want and choose, and in the end, everybody is coming out ahead," Davidson concluded.