Tuesday, March 8, 2011

Fares and Surcharges Take Off

With the Libyan conflict impacting oil supplies and speculation sweeping the world about the prospects of unrest in Iran and Saudi Arabia, the price of jet fuel is surging.

Fuel prices drive airline costs, and this has happened before.  Actually, it's happened many times.  In each of the recent cases, however, airlines have been burdened with excess capacity.  They've also had to contend with economic downturns that have eviscerated business travel.  The results have been a race to the bottom on fares to lure leisure travelers and massive operating losses.

This time, it's different.  Really.

Oil still drives fuel prices, and fuel still drives airline costs.  But demand is stronger now, and the airlines have slashed capacity over the last several years.  There are more people wanting to travel than there are seats in which to place them, and that means that airlines don't need to lower fares.

And they aren't lowering them.  They're raising them.

What's more, they're raising other charges too.  In addition to higher fares, airlines are boosting fuel surcharges and imposing peak-travel-time surcharges. 

If you need to travel for work and your employer is picking up the tab, you may not notice the difference.  For those of us with an inclination to explore, however, be warned: the latest era of deep discounts is drawing to a close.  You're going to be paying more to fly.

Monday, March 7, 2011

No Pretzels on Continental

What a difference a year makes. 

Going into 2010, Continental was the only airline that still offered complimentary meals in Coach.  Last March, it joined its peers in eliminating Coach-class meal service.

Going into 2011, Continental--now part of United Continental Holdings, but still operating as a distinct carrier--was among the few airlines that still offered complimentary pretzels (or biscotti to accompany coffee on morning flights).  Now, it is joining its peers in cutting those as well.

The move leaves Delta as the only legacy carrier that still offers free pretzels, though low-cost carriers JetBlue, AirTran, and Southwest continue to offer free snacks. 

It also follows a wider industry trend of replacing free amenities common to all passengers with options for passengers to buy specific amenities that they want.  Continental, for instance, sells a variety of snack boxes and fresh-food items on its flights.

Should we be surprised?  Definitely not.

After years of losses, airlines are finally profitable again.  But the conflict in Libya has driven oil prices as high as $106 a barrel as of this writing, which is about $20 higher than airlines had expected when they wrote their profit forecasts for the year.

Pretzels may not seem pricey, but eliminating them will save Continental $3.9 million annually.  It will also tempt passengers to buy snack boxes, which start at $3.95 -- potentially adding millions in new revenue.

For years now, Americans in particular have signed onto a bandwagon of lower prices and a-la-carte services.  We're getting what we asked for.  We're just going to have to live with it.