The introduction of a new airline fee program is reigniting an old debate about the true cost of air travel.
Earlier this month, United Airlines unveiled “subscriptions” that let you prepay for a year’s worth of baggage fees, seat upgrades or airport club access. The plans start at $349, for which you and up to eight companions traveling on the same reservation may check up to two bags per flight, and cost up to $500 or more for annual access to United’s 45 airport club locations and other select partner lounges worldwide.
“Our customers tell us that they value comfort and convenience, and our subscriptions enable us to provide both year-round,” said United spokeswoman Karen May. “We intend for these subscriptions to be long-term offers.”
The timing of United’s announcement might have been better. Just a few weeks before it introduced the subscription plan, the U.S. Transportation Department had quietly released its 2012 report on baggage fees collected by airlines. The report showed that United earned $705 million for the year, second only to Delta Air Lines’ $865 million. All told, the domestic airlines raked in a record $3.5 billion in luggage fees.
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If you’re a little confused about how much air transportation will cost after factoring in baggage charges as well as any other extras, then the subscription-based fee program is unlikely to help.
Airfares are rising — that much we know. For 2012, the average airfare cost a record $356, up from $343 a year before. Fees are also rising. Passengers spent an average of $10 in change fees and $13 in baggage fees (also records). But we don’t know precisely how much prices have jumped overall, once you factor in all the fees, because airlines aren’t required to report all this revenue to the government as separate numbers.
Since 2008, the major airlines have aggressively “unbundled” such items as luggage fees and seat reservation fees from their ticket prices, a clever marketing strategy designed to make the cost of air travel appear lower. At the same time, they’ve often failed to clearly disclose those costs at the point of purchase, leaving passengers with the impression that they were getting a deal. The resulting confusion has been a windfall for most airlines, which collected billions of dollars in fee revenue over the past five years.
Having a luggage-fee subscription injects yet another layer of complexity, making it harder to determine the actual price of air transportation.
Interestingly, this appears to be a recycled idea. United shelved a similar program in March 2012, after its merger with Continental Airlines, for technical reasons. But that didn’t seem to dampen the reaction to its re-emergence from airline watchers.
“I think this will be very successful,” predicted Jay Sorensen, whose IdeaWorks consultancy advises airlines on fees. “From the airline’s perspective, it’s a home run. The consumer pays for the benefits up front, so of course they’ll return as a consumer whenever they’re shopping for air travel.”
Sorensen, who estimates that United earned a total of $5.3 billion from all fees last year, or about $38 per passenger, also notes that the airline raised some of its rates when it reintroduced the subscriptions. For example, an annual pass that gives you a space-available upgrade to United’s Economy Plus section, where seats have about as much legroom as they did in coach sections before airline deregulation in the 1970s, jumped from $349 to $499. That’s likely to further help the bottom line of the world’s largest airline.
But passengers are skeptical. Some are even hostile to the idea.
“I have two words for United,” says John McNeal, a retired financial crimes and fraud prosecutor who lives in Chicago. “And they are not ‘Happy Birthday.’ “
Nora Graves, a software programmer in Purcellville, Va., who flies infrequently, says that the numbers don’t make sense to her. She would have to take a total of 14 flights to break even on a $349 subscription. Even if she checked two bags, it would still require six flights. “I find it very discouraging that airlines think that making travel more miserable is going to improve their customer base,” she says. “They need to fly anonymously, back in steerage with the rest of us. Then they might understand why their business models aren’t working well. Maybe it can become a new reality TV show?”
Some frequent business travelers scoff at the subscription idea, too.
“The thing everyone keeps saying is ‘If I flew enough for it to be worth it, I’d buy it,’ “ says Ann Wolfer, a frequent traveler who works for the military in Wilmington, Del. “Well, if you fly enough for it to be worth it, like I do, you would get free bags and Economy Plus access. You don’t get club access, but with connections down to 30 to 40 minutes, I rarely would even have an opportunity to use it.
But others like the concept of a subscription model for fees and are open to trying it.
“I think that is a great value,” says Nick Prewett, a college administrator in Lawrence, Kan. “If you travel enough.”
For example, a family of four on vacation checking four bags could break even if it checked five bags each way, he says. The only trick would be to fly enough to check the 14 bags that would be required to recoup your investment, he says.
But loyalty program expert Tim Winship says that it’s probably not worth the risk. He crunched the numbers and concluded that subscribers would probably fall into one of two categories: “mathematically challenged” or in denial about how much they travel. And he urges passengers to take a closer look at United’s subscriptions before buying one. “Do the math,” he says. “Volume discounts only yield savings if you actually use the product often.”
For me, the most troubling part of United’s subscriptions is the way the airline brushed off my detailed questions about the program.
Several passengers raised concerns about the fine print on the subscriptions, which gives United broad permission to “amend, cancel, or modify these terms, conditions, and pricing at any time with or without notice.” The airline refused to answer specific queries about the program contract, instead emailing me a vague statement from a spokeswoman, which I included at the top of this story. I guess we’ll have to take the airline at its word when it says that it won’t cancel the program again.
Add it all up, and it makes the benefits of United’s subscriptions dubious, at best. Air travelers may find them useful if they fly enough, but they probably won’t if they already have elite status, because they already get most of these perks. Why pay twice for the same thing?
But the rewards to United are undeniable. It gets to collect money from you upfront, can further obfuscate the real cost of its product, and best of all, if it changes its mind, it doesn’t even have to give you what it promised.