A very interesting article, indeed. Not surprising for someone who knows how corrupted CEOs' minds are & how companies are operated nowadays. Rich keep getting richer ... by squeezing ever more so ... the poor. On the other hand, more fees & uncomfortable travelling may translate into people travelling less, which in turn, might be beneficial for the environment.
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Last fall, Air Canada & WestJet followed Toronto’s Porter Airlines & most US carriers by charging economy-class passengers on domestic flights $25 to check a single suitcase (a charge to check a second piece of luggage had already been in place for several years). The move amounted to a doubling-down on the industry’s new fee-based business model, which, at times, appears designed to make parts of the travel experience so uncomfortable that passengers will pay to avoid them. A term has even been coined to reflect what airlines are inflicting on their customers: calculated misery. Want to sit with your family? Pay extra for advance seat selection. Uncomfortable in your economy-class seat? Pay to upgrade to a larger one that was only squeezed in because your original seat was shrunk.
But nowhere has the strategy been as lucrative for airlines’ bottom lines as the decision to charge for checking bags. In addition to asking passengers to pay for a formerly free service, the new fees have helped spawn a whole new family of optional charges related to advance boarding privileges—all the better to beat the rush of passengers lugging swollen carry-on luggage into the cabin & tying up precious overhead bin space.
Of course, all of these new fees & strategies to separate passengers from their money come at a time when the airlines are already benefiting tremendously from falling oil prices. And they’re not planning on passing on the savings if they can help it. “Our plan is not to pass any of it on,” WestJet’s CEO Gregg Saretsky said during a recent conference call to discuss the airline’s record fourth-quarter profit, in 2014, of $90 million. Likewise Air Canada’s CEO Calin Rovinescu—on the heels of recording his airline’s best financial performance in 77 years, with $531 million in profit in 2014—told investors: “We’ll use whatever tools we have at our disposal to drive profitability.”
While the new business model appears to offer the salvation that cash-strapped airlines have been seeking for years—baggage & other fees contributed to nearly US$50 billion in so-called “ancillary” revenues globally in 2014—it also risks unleashing a whole other dimension of hurt down the road, as flying becomes more miserable & cumbersome. In particular, the carry-on crisis spawned by checked-bag fees has bogged down already snail-like boarding times, tied up security screening lines at airports & forced unwilling employees to play the role of reluctant bag police. Even aircraft manufacturers have been dragged into the mess as they rush to redesign their planes to accommodate extra carry-on cargo. Meanwhile, all those kilometres of airport conveyor belts—financed by airport improvement fees, & designed to get planes on their way as fast as possible—threaten to go underutilized. All of these things add hidden costs—both monetary & psychological—to the already trying experience of modern air travel. And, as always, it’s passengers who will ultimately pay the price.
US air carriers now rake in about US$3.5 billion annually from bag fees, based on figures compiled by the US Bureau of Transportation Statistics. That makes it the largest source of ancillary revenue for US airlines ... . In Canada, meanwhile, airlines aren’t required to disclose how much the fees add to their annual sales, but analysts have estimated it’s in the neighbourhood of $50 million to $75 million a year each for WestJet & Air Canada. More important, that cash goes straight to the bottom line since, with the exception of Alaska Airlines & Porter, which now both promise guaranteed bag-delivery times upon arrival, there are no additional services being added.
At the same time, checked-bag fees have reduced the number of bags per passenger, helping airlines save on fuel & manpower. Though it’s difficult to find statistics on the overall impact on luggage volumes, a 2010 US government study suggested that US airlines saw a 50% drop in the amount of luggage being checked through onto their planes after the fees were introduced. (Air Canada says there’s only been a slight decrease in the number of checked bags after implementing the charge on domestic flights, “certainly much less than when we first introduced the policy on [flights to the U.S.] in 2011.”) At Toronto’s Pearson, domestic passengers checked an average of 1.2 bags each 5 years ago; now that figure is just one. “There’s certainly a cost savings by carrying fewer bags,” says Jay Sorensen, the president of Wisconsin-based airline consulting firm IdeaWorks. “When you apply a price to a good, economic theory says people will use less of it.”
The notion of putting limits on passengers’ luggage isn’t necessarily a bad one in principle. Sorensen, for one, recalls a trip taken in the era before baggage fees with his brother, who insisted on dragging around two giant suitcases for a week spent in a well-appointed hotel. Why? Because that was how much the airline permitted. ... Airport baggage employees, meanwhile, had their own horror stories—quite literally—from when passengers more or less had a free pass on checked luggage. ...
But while charging for a second checked suitcase helped clamp down on the worst abusers, expanding fees to all checked luggage seems to have created more problems than it solved. Air travellers, predictably, rushed to buy the biggest rolling suitcases permitted in airplane cabins, only to find insufficient room in the overhead bins. To make matters worse, the extra baggage showed up in the cabin just as airlines were in the process of cramming more seats into their planes in a bid to boost profits on busy routes. Air Canada, for example, has squeezed in 109 extra passengers on some of its Boeing 777s by adopting narrower seats that are just 43 cm across, rather than the usual 46 cm. WestJet, meanwhile, has also moved seats closer together to make room for its premium economy section. With more passengers hauling more luggage into cabins than ever before, Air Canada implemented a trial program at Pearson last fall aimed at cracking down on those passengers with oversized carry-ons, but the backlash was swift. Airline employees reportedly complained about angry & abusive passengers & demanded they not be forced to enforce the rules.
The net result is the already painful process of herding passengers onto their planes has slowed even further, continuing a trend under way for more than 40 years. A 1998 study by Boeing found that the rate at which passengers board a commercial jet has fallen steadily since 1970, thanks in part to more carry-on luggage & “airline service strategies.” In other words, the way airlines now board planes—business class, frequent fliers, back-to-front—makes little sense from an efficiency perspective (some studies have shown that just letting passengers board at random ends up being faster). But airlines are reluctant to change their practices because it allows them to sell early-boarding options. Air Canada’s new zoned boarding system gives priority to business class customers & certain “Elite” Aeroplan members, followed by those with lesser Aeroplan status & certain credit card holders. Then come families with young children & mere ticket holders. WestJet has a similar boarding system that gives priority to its premium economy ticket holders & frequent fliers. Those who are unable to find a place to stow their bag once they’re finally on the aircraft may be forced to check it at the gate, creating more work for staff &, apparently, the opportunity for mistakes. That’s what happened to an Edmonton groom on his way to his wedding in India recently. Vishal Shah told CBC News this week that Air Canada lost track of his carry-on & the $2,000 worth of valuables inside it. Air Canada responded by noting that passengers on international flights are permitted at least one free checked bag, & that “baggage fees are an industry reality worldwide.”
It’s not only passengers who are complaining. Shortly after US airlines began enforcing fees for all checked luggage, former US secretary of homeland security Janet Napolitano pleaded with them to reverse course because all the extra carry-on bags were slowing down screening times at US airports, adding an estimated $260 million a year in extra security costs. Mathieu Larocque, a spokesperson for the Canadian Air Transport Security Authority (CATSA) said the crown agency doesn’t share statistics on how much luggage its workers screen, but nevertheless said its workers handled 54 million passengers last year, including about 4.6 million passengers during the month of March, a particularly busy travel period because of March break. “We expect that number to be higher this year as passenger volumes continue to grow,” Larocque says.
At times it appears the different arms of the industry are working against each other. Airports have invested heavily in new technologies to speed up their luggage handling so planes can get away faster, only to watch airlines slow down the process with their unwieldy boarding schemes & all the extra carry-on baggage. Airplane manufacturers, meanwhile, are spending millions to re-engineer ingenious overhead bins to carry more bags, even though there’s a massive cargo hold directly under passengers’ feet. The largest version of the venerable Boeing 737, for example, will soon be able to accommodate 194 standard-sized carry-on bags, more than double the capacity of the same plane in 1998. The new “Space Bins” are deeper & wider, each capable of holding 6 bags placed on their sides. But there are limits to plane manufacturers’ ability to build their way out of the problem. Brent Walton, the manager of 737 interiors for Boeing, says adding any more weight overhead threatens to compromise the structural integrity of the fuselage. “I think this could be the limit,” he says of the latest upgrade. With the industry rapidly approaching peak carry-on, something will inevitably have to give.
For passengers, the mounting inconvenience of it all is supposed to be offset by the promise of lower airfares. In a Sept. 15 blog post, Bob Cummings, WestJet’s executive vice-president of sales & marketing, explained the rationale behind charging for a first checked bag as follows: “Not everyone travels with a checked bag—yet effectively, everyone is paying for one. The purpose of a first-bag fee is to offer you another choice. Rather than hiding the fee, this allows you to personalize how you want to fly by paying only for what you want or need.” Yet, while there is some evidence to suggest average air fares have gone down in Canada since the new checked bag fees came into force last fall, it’s not clear whether that’s because airlines are passing the purported savings along to customers (who don’t check bags) or because fuel prices have plummeted alongside the price of oil. Ben Cherniavsky, an analyst at Raymond James, says the bottom line is that it’s difficult to measure the overall impact of the policy without more financial disclosure from the airlines themselves.
What is clear is that, by charging for checked luggage, airlines are hoping to fundamentally redefine air travel as we know it. Implicit in the new checked-bag policies is the assumption that the average passenger should now resemble George Clooney’s character in the 2009 movie Up in the Air—an unattached, well-organized businessman, suit jacket draped over the shoulder, who only flies with the bare essentials in his Travelpro carry-on. Most real-world families, by contrast, tend to travel more like minor league hockey teams, with giant bags stuffed full of diapers, folding playpens & all manner of toys & other convenient distractions.
Of course, it wouldn’t be the first time that airline policies seemed capricious or unfair ... . But what makes the industry’s sudden infatuation with checked-bag fees troubling is that it’s not altogether clear whether airlines are any further ahead by inconveniencing their customers. Some U.S. studies have suggested that charging passengers for a first checked bag may actually be costing airlines money because of the additional time needed to “turn” planes at the gate. That’s because planes are giant, depreciating assets that only earn money when they’re flying. The potential hit to on-time performance—& therefore profitability—is among the reasons cited by Southwest Airlines for sticking with its “bags fly free” policy even as all of its peers adopt checked-bag fees. After all, the Texas-based airline pioneered the idea of quick airport turns in a bid to squeeze a few extra daily flights out of each of its planes. “You can definitely experience delays with excess carry-on bags,” spokesperson Brian Parrish says.
Air Canada, for its part, says charging for checked luggage has had no impact on its on-time performance, with a spokesperson citing a top-five ranking in last year’s FlightStats awards for the 79.6% of its flights that arrived on time. Southwest, by contrast, barely made the top 10 with a 74.3% on-time performance. But there’s an important caveat. On-time performance is judged against an airline’s own schedule, which can easily be padded to take into account factors like airport congestion & boarding times. And the main reason Southwest saw its industry-leading on-time performance briefly sag (it’s now back around 79%) is because it tried to squeeze 16 extra flights into its schedule in 2013 without adding new aircraft. In other words, Southwest made a misstep by trying to do more with less, not charging more for the same.
In some respects, the industry’s current fee-based business model threatens to unravel the ultra-efficient focus that Southwest & other low-cost carriers ushered in during the 1990s & early 2000s. It also resurrects memories of the hated & arbitrary roadblocks airlines used to foist on their customers—Saturday-night stay requirements, round-trip fares priced more competitively than one-way flights—in a bid to extract more money from them. What remains to be seen is whether the current approach continues to generate unwanted side effects, or eventually becomes the new normal with passengers falling in line. That’s what ultimately happened in Europe, according to Nick Gates, a portfolio director at European airline IT consulting firm SITA. “Slowly you will get to a point where the initial effect of the introduction of the baggage fees wears off,” he says. “The average number of bags checked in per passenger will start to creep up again. Everyone gets used to the idea of paying for it.”
If they don’t, airlines still have the nuclear option: charging for carry-on bags, too. The ultra low-cost US carrier Spirit Airlines infamously charges $26 to bring a carry-on bag when booking online (as much as $100 at the gate) & the result, experts say, is one of the smoothest boarding processes in the North American industry. On the other hand, Spirit Airlines also ranks down near Tajik Air & Turkmenistan Airlines when it comes to customer satisfaction scores, which may be a step too far for most North American carriers—even those that staunchly believe making their customers uncomfortable is a winning strategy.
-------------------------------------------------------------------------------
Last fall, Air Canada & WestJet followed Toronto’s Porter Airlines & most US carriers by charging economy-class passengers on domestic flights $25 to check a single suitcase (a charge to check a second piece of luggage had already been in place for several years). The move amounted to a doubling-down on the industry’s new fee-based business model, which, at times, appears designed to make parts of the travel experience so uncomfortable that passengers will pay to avoid them. A term has even been coined to reflect what airlines are inflicting on their customers: calculated misery. Want to sit with your family? Pay extra for advance seat selection. Uncomfortable in your economy-class seat? Pay to upgrade to a larger one that was only squeezed in because your original seat was shrunk.
But nowhere has the strategy been as lucrative for airlines’ bottom lines as the decision to charge for checking bags. In addition to asking passengers to pay for a formerly free service, the new fees have helped spawn a whole new family of optional charges related to advance boarding privileges—all the better to beat the rush of passengers lugging swollen carry-on luggage into the cabin & tying up precious overhead bin space.
Of course, all of these new fees & strategies to separate passengers from their money come at a time when the airlines are already benefiting tremendously from falling oil prices. And they’re not planning on passing on the savings if they can help it. “Our plan is not to pass any of it on,” WestJet’s CEO Gregg Saretsky said during a recent conference call to discuss the airline’s record fourth-quarter profit, in 2014, of $90 million. Likewise Air Canada’s CEO Calin Rovinescu—on the heels of recording his airline’s best financial performance in 77 years, with $531 million in profit in 2014—told investors: “We’ll use whatever tools we have at our disposal to drive profitability.”
While the new business model appears to offer the salvation that cash-strapped airlines have been seeking for years—baggage & other fees contributed to nearly US$50 billion in so-called “ancillary” revenues globally in 2014—it also risks unleashing a whole other dimension of hurt down the road, as flying becomes more miserable & cumbersome. In particular, the carry-on crisis spawned by checked-bag fees has bogged down already snail-like boarding times, tied up security screening lines at airports & forced unwilling employees to play the role of reluctant bag police. Even aircraft manufacturers have been dragged into the mess as they rush to redesign their planes to accommodate extra carry-on cargo. Meanwhile, all those kilometres of airport conveyor belts—financed by airport improvement fees, & designed to get planes on their way as fast as possible—threaten to go underutilized. All of these things add hidden costs—both monetary & psychological—to the already trying experience of modern air travel. And, as always, it’s passengers who will ultimately pay the price.
US air carriers now rake in about US$3.5 billion annually from bag fees, based on figures compiled by the US Bureau of Transportation Statistics. That makes it the largest source of ancillary revenue for US airlines ... . In Canada, meanwhile, airlines aren’t required to disclose how much the fees add to their annual sales, but analysts have estimated it’s in the neighbourhood of $50 million to $75 million a year each for WestJet & Air Canada. More important, that cash goes straight to the bottom line since, with the exception of Alaska Airlines & Porter, which now both promise guaranteed bag-delivery times upon arrival, there are no additional services being added.
At the same time, checked-bag fees have reduced the number of bags per passenger, helping airlines save on fuel & manpower. Though it’s difficult to find statistics on the overall impact on luggage volumes, a 2010 US government study suggested that US airlines saw a 50% drop in the amount of luggage being checked through onto their planes after the fees were introduced. (Air Canada says there’s only been a slight decrease in the number of checked bags after implementing the charge on domestic flights, “certainly much less than when we first introduced the policy on [flights to the U.S.] in 2011.”) At Toronto’s Pearson, domestic passengers checked an average of 1.2 bags each 5 years ago; now that figure is just one. “There’s certainly a cost savings by carrying fewer bags,” says Jay Sorensen, the president of Wisconsin-based airline consulting firm IdeaWorks. “When you apply a price to a good, economic theory says people will use less of it.”
The notion of putting limits on passengers’ luggage isn’t necessarily a bad one in principle. Sorensen, for one, recalls a trip taken in the era before baggage fees with his brother, who insisted on dragging around two giant suitcases for a week spent in a well-appointed hotel. Why? Because that was how much the airline permitted. ... Airport baggage employees, meanwhile, had their own horror stories—quite literally—from when passengers more or less had a free pass on checked luggage. ...
But while charging for a second checked suitcase helped clamp down on the worst abusers, expanding fees to all checked luggage seems to have created more problems than it solved. Air travellers, predictably, rushed to buy the biggest rolling suitcases permitted in airplane cabins, only to find insufficient room in the overhead bins. To make matters worse, the extra baggage showed up in the cabin just as airlines were in the process of cramming more seats into their planes in a bid to boost profits on busy routes. Air Canada, for example, has squeezed in 109 extra passengers on some of its Boeing 777s by adopting narrower seats that are just 43 cm across, rather than the usual 46 cm. WestJet, meanwhile, has also moved seats closer together to make room for its premium economy section. With more passengers hauling more luggage into cabins than ever before, Air Canada implemented a trial program at Pearson last fall aimed at cracking down on those passengers with oversized carry-ons, but the backlash was swift. Airline employees reportedly complained about angry & abusive passengers & demanded they not be forced to enforce the rules.
The net result is the already painful process of herding passengers onto their planes has slowed even further, continuing a trend under way for more than 40 years. A 1998 study by Boeing found that the rate at which passengers board a commercial jet has fallen steadily since 1970, thanks in part to more carry-on luggage & “airline service strategies.” In other words, the way airlines now board planes—business class, frequent fliers, back-to-front—makes little sense from an efficiency perspective (some studies have shown that just letting passengers board at random ends up being faster). But airlines are reluctant to change their practices because it allows them to sell early-boarding options. Air Canada’s new zoned boarding system gives priority to business class customers & certain “Elite” Aeroplan members, followed by those with lesser Aeroplan status & certain credit card holders. Then come families with young children & mere ticket holders. WestJet has a similar boarding system that gives priority to its premium economy ticket holders & frequent fliers. Those who are unable to find a place to stow their bag once they’re finally on the aircraft may be forced to check it at the gate, creating more work for staff &, apparently, the opportunity for mistakes. That’s what happened to an Edmonton groom on his way to his wedding in India recently. Vishal Shah told CBC News this week that Air Canada lost track of his carry-on & the $2,000 worth of valuables inside it. Air Canada responded by noting that passengers on international flights are permitted at least one free checked bag, & that “baggage fees are an industry reality worldwide.”
It’s not only passengers who are complaining. Shortly after US airlines began enforcing fees for all checked luggage, former US secretary of homeland security Janet Napolitano pleaded with them to reverse course because all the extra carry-on bags were slowing down screening times at US airports, adding an estimated $260 million a year in extra security costs. Mathieu Larocque, a spokesperson for the Canadian Air Transport Security Authority (CATSA) said the crown agency doesn’t share statistics on how much luggage its workers screen, but nevertheless said its workers handled 54 million passengers last year, including about 4.6 million passengers during the month of March, a particularly busy travel period because of March break. “We expect that number to be higher this year as passenger volumes continue to grow,” Larocque says.
At times it appears the different arms of the industry are working against each other. Airports have invested heavily in new technologies to speed up their luggage handling so planes can get away faster, only to watch airlines slow down the process with their unwieldy boarding schemes & all the extra carry-on baggage. Airplane manufacturers, meanwhile, are spending millions to re-engineer ingenious overhead bins to carry more bags, even though there’s a massive cargo hold directly under passengers’ feet. The largest version of the venerable Boeing 737, for example, will soon be able to accommodate 194 standard-sized carry-on bags, more than double the capacity of the same plane in 1998. The new “Space Bins” are deeper & wider, each capable of holding 6 bags placed on their sides. But there are limits to plane manufacturers’ ability to build their way out of the problem. Brent Walton, the manager of 737 interiors for Boeing, says adding any more weight overhead threatens to compromise the structural integrity of the fuselage. “I think this could be the limit,” he says of the latest upgrade. With the industry rapidly approaching peak carry-on, something will inevitably have to give.
For passengers, the mounting inconvenience of it all is supposed to be offset by the promise of lower airfares. In a Sept. 15 blog post, Bob Cummings, WestJet’s executive vice-president of sales & marketing, explained the rationale behind charging for a first checked bag as follows: “Not everyone travels with a checked bag—yet effectively, everyone is paying for one. The purpose of a first-bag fee is to offer you another choice. Rather than hiding the fee, this allows you to personalize how you want to fly by paying only for what you want or need.” Yet, while there is some evidence to suggest average air fares have gone down in Canada since the new checked bag fees came into force last fall, it’s not clear whether that’s because airlines are passing the purported savings along to customers (who don’t check bags) or because fuel prices have plummeted alongside the price of oil. Ben Cherniavsky, an analyst at Raymond James, says the bottom line is that it’s difficult to measure the overall impact of the policy without more financial disclosure from the airlines themselves.
What is clear is that, by charging for checked luggage, airlines are hoping to fundamentally redefine air travel as we know it. Implicit in the new checked-bag policies is the assumption that the average passenger should now resemble George Clooney’s character in the 2009 movie Up in the Air—an unattached, well-organized businessman, suit jacket draped over the shoulder, who only flies with the bare essentials in his Travelpro carry-on. Most real-world families, by contrast, tend to travel more like minor league hockey teams, with giant bags stuffed full of diapers, folding playpens & all manner of toys & other convenient distractions.
Of course, it wouldn’t be the first time that airline policies seemed capricious or unfair ... . But what makes the industry’s sudden infatuation with checked-bag fees troubling is that it’s not altogether clear whether airlines are any further ahead by inconveniencing their customers. Some U.S. studies have suggested that charging passengers for a first checked bag may actually be costing airlines money because of the additional time needed to “turn” planes at the gate. That’s because planes are giant, depreciating assets that only earn money when they’re flying. The potential hit to on-time performance—& therefore profitability—is among the reasons cited by Southwest Airlines for sticking with its “bags fly free” policy even as all of its peers adopt checked-bag fees. After all, the Texas-based airline pioneered the idea of quick airport turns in a bid to squeeze a few extra daily flights out of each of its planes. “You can definitely experience delays with excess carry-on bags,” spokesperson Brian Parrish says.
Air Canada, for its part, says charging for checked luggage has had no impact on its on-time performance, with a spokesperson citing a top-five ranking in last year’s FlightStats awards for the 79.6% of its flights that arrived on time. Southwest, by contrast, barely made the top 10 with a 74.3% on-time performance. But there’s an important caveat. On-time performance is judged against an airline’s own schedule, which can easily be padded to take into account factors like airport congestion & boarding times. And the main reason Southwest saw its industry-leading on-time performance briefly sag (it’s now back around 79%) is because it tried to squeeze 16 extra flights into its schedule in 2013 without adding new aircraft. In other words, Southwest made a misstep by trying to do more with less, not charging more for the same.
In some respects, the industry’s current fee-based business model threatens to unravel the ultra-efficient focus that Southwest & other low-cost carriers ushered in during the 1990s & early 2000s. It also resurrects memories of the hated & arbitrary roadblocks airlines used to foist on their customers—Saturday-night stay requirements, round-trip fares priced more competitively than one-way flights—in a bid to extract more money from them. What remains to be seen is whether the current approach continues to generate unwanted side effects, or eventually becomes the new normal with passengers falling in line. That’s what ultimately happened in Europe, according to Nick Gates, a portfolio director at European airline IT consulting firm SITA. “Slowly you will get to a point where the initial effect of the introduction of the baggage fees wears off,” he says. “The average number of bags checked in per passenger will start to creep up again. Everyone gets used to the idea of paying for it.”
If they don’t, airlines still have the nuclear option: charging for carry-on bags, too. The ultra low-cost US carrier Spirit Airlines infamously charges $26 to bring a carry-on bag when booking online (as much as $100 at the gate) & the result, experts say, is one of the smoothest boarding processes in the North American industry. On the other hand, Spirit Airlines also ranks down near Tajik Air & Turkmenistan Airlines when it comes to customer satisfaction scores, which may be a step too far for most North American carriers—even those that staunchly believe making their customers uncomfortable is a winning strategy.
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