May 112014
 
A flying misery index.  Passenger load factors from 1948 through 2013.  The lower red line means we average one empty seat in three (ie no middle seat travel), the upper red line means we average one empty seat in six (ie half the middle seats are full).

A flying misery index. Passenger load factors from 1948 through 2013. The lower red line means we average one empty seat in three (ie no middle seat travel), the upper red line means we average one empty seat in six (ie half the middle seats are full).

It is either a very brave – or a very foolish – reporter who volunteers to write a story supporting high airline ticket prices and fees.  You can decide whether this NY Times reporter is brave or foolish.

He certainly starts off very bravely.  In the opening – the ‘lede’ to his article, he is suggesting we should shut up and pay up next time we fly :

Don’t complain too much.  Passengers actually are still getting close to the best deal they’ve ever gotten, despite sharp rises in baggage and change fees over the last decade.

So – there have been sharp rises in baggage and change fees over the last decade (oh yes, and sharp rises in airfares too, but the reporter conveniently omits that in his sentence); and still he tells us ‘Don’t complain too much’.

Why should we not complain about sharp rises (and these rises are after adjusting for inflation) in airfares and fees over the past decade?  Does the fact that there were drops in fares ten, twenty, and thirty plus years ago somehow mean that we now should happily pay way more than last year and the year before for the same travel?

The reporter tells us that because jet fuel prices rose 42% over the last eight years, we should be happy that air fares and fees went up 16%.  But perhaps he could do his homework and put this in context, not just tell us how much the price of fuel at the pump changed.  The combination of more fuel-efficient planes and more passengers per plane has softened the impact of fuel price changes as part of an average airfare, and – most of all – other operational efficiencies elsewhere in the airlines’ operations have more than compensated for fuel cost increases.

He falls into the trick of mindlessly repeating the airlines’ propaganda rather than looking beyond it.  The airlines love to talk about rising fuel costs (even though they have not risen all that much over the last few years – indeed Delta’s 2013 fuel cost is lower than it was in 2012 or 2011) but they prefer not to talk about the rest of their operations.

To compare 2005 with 2013 (the dates the reporter chose), let’s look at Delta to see what a typical major dinosaur carrier was doing in both years

(In millions) 2013 2005
Gross Income $37,773 $16,191
Fuel Cost $11,484 $4,261
Fuel as % of gross income 30.4% 22.2%

 

So the airlines’ (and the reporter’s) narrative is simple :  ‘Poor us.  Our fuel costs have increased from 22.2% to 30.4%.  We are paying $3,097 million more for fuel in 2013 than we should be, based on our 2005 prices, so of course we need to charge more for our fares, your bags, and everything else.  We’re in a financial crisis.’

You’ve heard this line time after time, for as long as fuel prices have been perceived as rising.

But, before you start dabbing your eyes to staunch the flow of tears, let’s actually look a bit further than just the numbers the airlines want us to look at.  Again, for Delta, and again just for the two years the reporter mentioned.

(In millions) 2013 2005
Gross Income $37,773 $16,191
Fuel Cost $11,484 $4,261
Net Income before Taxes (Loss) $2,527 ($2,975)
Net Income after Taxes (Loss) $10,540 ($3,839)

 

Never mind the fuel cost.  Look at the bottom line.  Sure, fuel prices have gone up, but other costs have gone down and profitability has skyrocketed.  From a loss of either almost three or four billion dollars in 2005, in 2013 Delta is reporting a profit of $2.5 billion before tax or $10.5 billion after tax (yes, we wish we too could get a tax refund of $8 billion after reporting a $2.5 billion profit!).

Now tell me again exactly why we should feel good about the ever-higher airfares we are paying?  Where exactly is the negative impact of extra fuel costs in a multi-billion dollar net profit?

The reporter’s underlying contention, that air fares are great value today and we should be appreciative, is all the more off-base when you realize he isn’t truly comparing apples with apples.  Sure, he admits that there are now baggage fees, but he gullibly falls into the airline trap of comparing the fee to check one bag, oneway, in a best case scenario that assumes the bag is not oversized and does not weigh more than 50lb, with the former ‘good old days’ of being able to check two or sometimes three bags, roundtrip, for free, with each bag weighing up to 70 lbs.  The net result is that we can no longer ‘free pack’ anything we think we might need and not worry about it, other than for the personal hassle of traveling with more bags.  Now we have to obsessively think about every item we put in our suitcase and wonder/worry if we really need it and if it will push us over our 50lb limit.  Air travel is not only more expensive, it is less convenient.

How does he factor in the enormous increases in change and cancel fees?  He doesn’t, but he should.  Twenty years ago, most tickets had no change fee, and cancellation fees were moderate.  Now most fares offer no refund, and the change fee can be as much as $300.  Shouldn’t that be factored into the equation as well?

Those change and cancel fees are both obvious and subtle.  In the ‘good old days’, with no change fee, not only could we change our flights for free, but if the airline came out with a new lower fare or a fare sale, the no cancel fee meant we could get our tickets redone at the lower fare and get a refund.  Sort of like an Amazon ‘low price guarantee’ when you buy a movie from them in advance of its release.

And don’t forget also that if you had a ticket on a later flight but got to the airport early, you’d be allowed onto the earlier flight for no extra fee, and indeed, the airline was delighted to fill up the earlier flight and have more open seats later in the day for ‘just in case’ eventualities that might arise.  Now the airline will charge us to do them a favor if we ask to go out on an earlier flight.

How does the reporter adjust for the fact that previously, meals were included for free, and now they are extra?  How does the reporter adjust for the fact that once upon a time, 20,000 frequent flier miles were all you needed for a truly free roundtrip flight in the US, and now you can spend 50,000 or more miles, plus pay spurious fees, for a ‘free’ ticket?

How does the reporter adjust for the ‘good old days’ when you were 99% guaranteed to get your seat of choice, with no-one in the middle seat next to you, with the new reality today where the seats are smaller, you may have to pay more money if you want the seat of your choice, and for sure there’ll be someone squashed in next to you?

This is the key issue.  Not only are we paying materially more for our tickets, and paying additional fees for all the things that used to be free, but in our attempt to control our exposure to these rapacious fees, we are incurring other obscured costs (not being able to rebook tickets) and great inconveniences (limiting what we travel with), and enduring a less comfortable travel experience on the plane (which probably takes longer to get us where we’re going that was formerly the case, too!).

All in all, while none of us ever thought we’d be referring to the 1990s or the 1980s or earlier as ‘the good old days’ or ‘the golden era of air travel’, if we truly compare the totality of the experience today to what it was back then, there is no doubt that we are paying a lot more and getting a whole lot less in return.

So who here agrees with the reporter’s claim that we’re getting close to the best deal we’ve ever gotten?

  One Response to “The NY Times Says We Should be Happy to Pay Airline Fees and Fares”

  1. Excellent analysis.

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