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August 20, 2014

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New airline fees: The sky’s the limit

PHOENIX – When it comes to fees and charges airlines assess their passengers, it seems the sky’s the limit.

A panel discussion at the recent Phoenix Sky Harbor International Aviation Symposium addressed issues associated with airline ancillary revenue, the cash generated when passengers pay for products and services beyond passenger safety. Or, more to the point, the fees passengers pay now that they didn’t have to pay before.

Although many people who fly think they are held hostage by airlines that nickel-and-dime their customers, the trend to develop more ancillary revenue doesn’t appear to be going away. In fact, there may be more options ahead that make it even more important for fliers to shop around for airline tickets.

The most irritating of the fees, the bag check fee, was introduced when fuel costs skyrocketed to $148 a barrel. But, of course, when oil prices dived to $40 a barrel a few months later, the baggage fees didn’t go away.

An instant poll conducted during the symposium’s panel discussion indicated that most of the 200 aviation industry participants thought $50 was a reasonable charge for two bags on a flight.

When most carriers implemented bag fees, there was an increase in the number of travelers using more carry-on bags and avoiding checking suitcases. Subsequently, airlines handled fewer bags and the number of mishandled and lost bags declined, according to Transportation Department statistics.

But the change generated a new problem. Suddenly, overhead bin space became more valuable and it became more important to many fliers to board their planes ahead of their fellow passengers.

Now, some airlines are looking at charging passengers to board ahead of their scheduled boarding group. Since most airlines have assigned seats, the only purpose is to get on board and stake a claim for bin space before the rest of the passengers.

Southwest Airlines, the busiest carrier at McCarran International Airport, has scored some big public relations Brownie points by advertising that they don’t have many of the ancillary fees charged by their competitors. But if you think about it, Southwest pioneered the concept of charging extra for the opportunity to board ahead of everybody else when it introduced its Business Select service.

If you buy a ticket on Southwest, you get a choice of three tiers of prices – the least expensive Wanna Get Away fare, the refundable Anytime fare and Business Select, which enables the passenger to board first and get a free alcoholic beverage for a premium that usually runs $15 to $25 more than the Anytime fare and up to several hundred dollars more from the lowest fare.

Several airlines appear to be catching on to the value of ancillary revenue, which was one of the staples of the business model developed by Las Vegas-based Allegiant Air. At US Airways Media Day, company executives said the airline generated $165 million in ancillary revenue in 2008.

Louis Saint-Cyr, vice president of in-flight services at Hawaiian Airlines, said his airline is profiting by selling upgraded meals that include sushi and salads.

“If you put a good quality product in place, customers will buy it,” said Saint-Cyr, who told me after the panel that Hawaiian’s new Honolulu-Las Vegas nonstop is doing well.

Panelists also talked about US Airways’ ill-fated attempt to charge passengers for soft drinks. McCarran’s second-busiest carrier instituted the charge, then backed away from it after customer outrage.

In another instant poll at the symposium, 67 percent of those attending predicted that airlines would charge extra for soft drinks within five years. But in another poll, only 23 percent predicted airlines would charge extra for bottled water within five years.

The experts also concurred that when in-flight Wi-Fi service becomes available on most airlines — Southwest is already testing it on four planes and Delta and American are in the midst of trials — that the going rate would probably be around $10 for access. An instant survey showed 47 percent predicted that price point, 23 percent felt it would be at about $5, 2 percent felt it would be at around $25 and 28 percent thought it would be free. The “free” responses reflected the opinion that airlines would pay for the equipment with advertising messages when accessing the service.

Government policy changes on foreign ownership and airport economics also were on the symposium agenda.

In a panel on international issues, the debate over foreign ownership and proposals for foreign carriers to fly domestic routes were raised and it was clear that stakeholders are far apart in their views.

Panelist Clive David Wright, first secretary of transportation policy at the British Embassy in Washington, suggested that the aviation industry could respond to the global recession by going back to intergovernmental negotiations to further open-skies agreements that would enable more flying by foreign carriers in the United States.

Caught in the cross hairs of the debate was panelist Edmond Rose, director of commercial and revenue planning for Virgin Atlantic Airways, a carrier with a growing presence at McCarran International Airport, who was asked about its operation. Rose made it clear that Virgin America, owned by American investors, takes no direction from Virgin Atlantic management. But he added that he couldn’t understand why the U.S. government would stand in the way of Virgin Atlantic using its resources to make Virgin America a better carrier.

Panelist John Prater, president of the Air Line Pilots Association, said the issue for unions is the prospect of lost jobs to foreign companies if those airlines grabbed market share from American companies. Prater also is disturbed by prospective job losses and safety issues if American air carriers are allowed to have aircraft maintenance performed by foreign companies.

Panelist John Byerly, deputy assistant secretary for transportation affairs for the State Department, said the Obama administration is still formulating international policy for the aviation industry.

In an interactive poll conducted at the symposium, 65 percent of about 200 people said they felt foreign ownership and domestic flying would benefit the American airline industry. But 54 percent of the respondents also said they didn’t expect Congress to take action on the issue. Another 39 percent said they expected Congress to act favorably within five years and 7 percent said they expected action within two years.

In a panel on airport economics, panelists noted that many of the nation’s airports are looking to nonaeronautical revenue as a means to survive rough financial times.

Thanks in part to the slot-machine concession, McCarran has the eighth lowest airport cost per enplaned passenger at just below $10 per passenger, according to Federal Aviation Administration statistics.

McCarran trails airports at Charlotte, N.C.; Salt Lake City; Chicago Midway; Phoenix; Fort Lauderdale, Fla.; San Diego; and Cincinnati.

Capacity cuts by several airlines have left some of the nation’s airports struggling. Among the hardest hit was Pittsburgh International Airport, which has seen its passenger counts fall 38 percent from 2000 to the third quarter of 2008. Also making that list: Reno-Tahoe International Airport, down 22 percent in the same time frame, a tie for fifth worst among the nation’s top 100 airports. Reno trails airports at Pittsburgh; Cincinnati; Tucson; and Ontario, Calif., and is tied with Savannah, Ga.

Panelist Catherine Lang, acting associate administrator of the FAA’s office of airports, said airports’ inability to access capital markets is worrisome, but panelists also noted that an airport has never defaulted on a bond payment.

Privatization of airports is another model under study. Among the advantages of private airport ownership is that projects can be developed much faster than public airports because there is less federal red tape.

Chicago’s Midway Airport is moving toward privatization this year. A private airport in Branson, Mo., is close to opening and the new Terminal 4 at John F. Kennedy International Airport is privately operated.

Southwest in Big Apple

Southwest Airlines announced its flight schedule to New York’s LaGuardia International Airport beginning June 28.

Southwest can’t offer nonstop flights between Las Vegas and LaGuardia unless the airline gets an exemption from the 1,500-mile perimeter rule imposed by the New York Port Authority.

Because Southwest took possession of a limited number of flight slots at LaGuardia, it’s limited to how much service it can offer and when flights begin. There will be five flights to and from Chicago’s Midway Airport and three to and from Baltimore-Washington.

Because Southwest already has a robust schedule to both of those cities, there are numerous connecting flights to New York. On the schedule, there are four flights to LaGuardia, three one-stop routes (two of them including a change of planes in Chicago) and one three-stop marathon that will take more than nine hours.

On returns, there are five one-stop change-of-planes routes through either Chicago or Baltimore and one two-stop change-of-planes route through Baltimore.

No carrier offers nonstop flights to LaGuardia from Las Vegas. Several offer one-stop flights with the lowest round-trip fares at $260. Southwest’s lowest introductory fares pencil out to $233 a round trip.

New Allegiant route

If you have friends in Oregon that want a getaway to the San Francisco Bay Area, you may want to recommend Las Vegas-based Allegiant Air, which is introducing twice-a-week flights between Eugene and Oakland, Calif., beginning June 8. The airline is introducing the route with $39 one-way fares, which means with taxes and fees, a round-trip ticket would run about $132.

Allegiant, one of the airline industry’s few profitable air carriers, has been successful targeting niche markets with point-to-point service, such as the Eugene-Oakland route. The airline has capitalized on the Canadian market by establishing a base of operations in Bellingham, Wash.

But rivals apparently are catching on.

Alaska Airlines, which averages about 10 flights a day linking Las Vegas with Portland, Ore., and the airline’s Seattle hub, announced that on June 25 it would begin operating three flights a week between Bellingham and Las Vegas.

Alaska plans to introduce the new service with $59 (before taxes and fees) tickets. Allegiant responded with $28 fares before taxes and fees, but they’re now at $78.

Seattle-based aviation watchers believe the market isn’t big enough to support both carriers, but based on what Allegiant has invested there, it will be interesting to see who blinks first.

In the meantime, local residents who want to visit Washington or nearby Vancouver, British Columbia, in the summer have some great deals available.

Richard N. Velotta covers tourism for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4061 or at [email protected].

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