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Airlines get more creative with fees

Even shoe fittings help boost revenue

By Katie Johnston Chase
Globe Staff / March 25, 2011

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Beleaguered airlines are trying to generate revenue wherever they can.

As they struggle with fuel prices that have soared 32 percent since the beginning of this year, US carriers are raising fees and rolling out new services in an effort to squeeze more money out of passengers, from $5 to lock in fares to $125 for a personal escort from the curb to the gate.

Last year, airlines around the world collected about $18 billion from fees for things such as checked baggage and early boarding, according to an estimate by airline consulting firm IdeaWorks. In five years, airlines expect that 15 percent of their revenue will come from fees for optional services — double the amount it is now — according to Forrester Research Inc., based in Cambridge.

“Airlines aren’t just transportation companies anymore, they want to be retail merchandisers, like Wal-Mart, offering a $1 12-pack of Coke at the back of the store — hoping you’ll buy some Tupperware along the way,’’ said Rick Seaney, president of FareCompare.com. “So expect to see more airline fees and discounts on these fees, like half off Wi-Fi on Thursdays when the moon is full.’’

The new focus comes as the industry reels from recent challenges. This winter, several major storms swept across the United States, costing the airlines hundreds of millions of dollars from cancellations. Then, unrest in the Middle East sent oil prices above $100 a barrel, which pushed up jet fuel costs. Now, the disaster in Japan is threatening traffic to the region at a time when US airlines are focusing more on international flights.

To compensate for rising costs, airlines have pushed through seven fare increases since the beginning of the year. Delta Air Lines and United Airlines have abandoned plans to increase capacity later in the year, which could drive up prices even more. Raised fees and added services are just the latest efforts to generate more revenue.

“We don’t take a trip just to sit on an airplane, so the airlines are smart,’’ said Henry Harteveldt, an airline analyst with Forrester Research. “They’re saying, ‘How can we help a traveler check off more of their done boxes for their trip by selling them these things?’ ’’

Airlines are charging for many things that once were free, including checked baggage, pillows, and snacks. At US Airways a window or aisle seat toward the front of coach comes with a price tag — $12 on a flight from Boston to Philadelphia, for instance. On American Airlines, a seat in the front of coach will cost $19 to $39 more, but its occupant also gets to board early (available on its own for a $10 fee).

They also are finding new things that passengers can pay for. American will send someone to meet passengers at the curb, help them with baggage, and escort them to the gate for $125 each. Surfing the Web on a three-plus hour flight on AirTran Airways costs $12.95. United Airlines just launched a champagne brunch — in coach — with quiche, fresh fruit, cheese, and salmon for $24.99 on some flights.

Other new amenities include Continental Airlines’ fare lock-in, which allows travelers to hold a fare without buying it for three days for $5. As of this summer, Delta will offer economy seats on international flights that recline 50 percent farther, and have 4 more inches of legroom, for an extra $80 to $160 each way.

“We need to capture any reasonable source of revenue that we can if we are to stay in business and serve customers,’’ said American spokesman Ned Raynolds. “We lost $471 million last year.’’

Even JetBlue Airways — which prides itself on giving passengers free perks such as the first checked bag, a TV in every seat, and all-you-can-eat plantain chips — recently bumped up its fee for a second checked bag from $30 to $35 in response to the cost of fuel. “We will continue to focus on controllable costs in order to remain competitive,’’ said spokesman Mateo Lleras.

Spirit Airlines, which charges passengers $20 to $45 to put their carry-ons in an overhead bin, leads the way when it comes to fees, getting 27 percent of its operating revenue from optional products and services, according to the Bureau of Transportation Statistics — well above the 6 to 9 percent of Southwest Airlines, US Airways, Delta, and AirTran. Letting people choose what a la carte options they want to pay for helps keep fares low, said Spirit spokeswoman Misty Pinson.

“Might sound novel for the airline industry,’’ she said, quoting the company’s fact sheet, “but think about it in terms of buying a car, looking at a restaurant menu, or going to the movies.’’

Many airlines have long offered travel packages that bundle airfare with hotels and car rentals, and they’re starting to delve more deeply into the retail business. Virgin Atlantic Airways recently teamed up with an upscale shoe company to offer male passengers the chance to be fitted for custom-made shoes at Heathrow Airport. Onboard, passengers can buy tickets for ground transportation at the airport, as well as for Broadway shows, Disney World, and Cirque du Soleil, on the same hand-held devices they use to order food and drinks.

“We sort of think of a flight leg being like a store visit,’’ said Brett Proud of GuestLogix, an in-flight retail provider that works with American, Delta, and United.

GuestLogix is rolling out a mobile application that will allow passengers to browse for items on their smartphones in flight and has developed a feature that will enable passengers watching a movie to touch the screen and order a scarf an actor is wearing. Proud estimates that onboard retail shopping partnerships could bring in an extra $1 to $5 per passenger for airlines.

But just because airlines offer new services doesn’t mean people will pay for them.

Marion Gianino of Melrose said she wouldn’t shell out for luxuries such as extra legroom or champagne brunches because she prefers to save her money for things like a good meal when she gets to her destination.

“I’ll put up with the tight seat,’’ she said.

Regardless, more fees are bound to come.

George Hobica of Airfarewatchdog.com said carriers could start charging extra for infants, for booking tickets on the Internet, and for carry-on bags. Some charges are enacted to get people to change their behavior in ways that will benefit the airline, he said. Levying a credit card fee would encourage people to sign up for the airline’s credit card, and upping phone reservation fees means fewer people will use the call center, allowing the airline to cut back on staff.

“When they increase fares, people stay home or drive, so now they’re thinking we’ll just increase the fees,’’ Hobica said.

Other possibilities analysts see: offering preordered premium meals, providing in-flight spa services (which Virgin Atlantic has done in the past), renting entertainment devices, and issuing money-back guarantees for on-time flights. In Spain, passengers on the low-cost carrier Vueling Airlines pay extra to keep the middle seat empty. And how about charging people to use the restroom, like Irish carrier Ryanair has proposed?

All these paid extras could work in the consumers’ favor, said Jay Sorensen, president of IdeaWorks.

“I think we’re going to see an improvement in quality of services,’’ he said. “When you start charging for checked bags, you darn well better deliver it to me on time. When you start charging for a meal, it better be tasty and fresh.’’

Katie Johnston Chase can be reached at johnstonchase@globe.com.

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