Travelers hate them – fees for everything. Change your mind? That will be $50 please. Got bags? A fee. Spirit even charges for carry on bags. Is there no end to the nickle and diming? The short answer is no.
Using 2005 as the base year, take a look at how the airline industry is mainlining on fees. It is quite remarkable. Virgin America has taken to fees with a fervor (and they have a great way to gather these on their IFE system) – but in total revenue terms, Delta is the biggest fee gatherer. Delta alone accounted for a third of the US airline industry’s 2010 ancillary revenues as the table illustrates.
Take a look at how much Delta managed to gather in reservation cancel fees through September 2011. Delta managed to charge 36% more than United and Continental combined and 57% more than American.
The US airline industry is dependent on these fees. Without them profits would disappear. The next slide shows just how crucial these fees have become to the industry’s revenue.
MIT Airline Data Project research shows that in 2010 the industry averaged a loss of $19.47 per ticket. Adding back ancillary revenue of $8.70 per ticket cut the loss to $10.76 per ticket. Between 3Q10 and 3Q11 we have seen average US airfares rise 6.2%. With capacity constraint and rising fares, and more importantly those fees, the US airline industry looks set to be profitable in 2012.