The airline industry has been looking a lot like a season of Survivor lately. For those of you just tuning in, let’s recap what’s happened so far: Five U.S. airlines went bankrupt in less than a month and four of those completely shut down. Delta and Northwest announced on April 14 their intentions to merge into one mega carrier after decades of independence, and now some of the other legacy carriers seem frantic to find partners of their own. As for consumers, this year the airlines have hit us with one added fee after the next and have tried to hike fares 14 times.
What gives? In a word, oil. “What we’re facing now with oil prices is a situation none of us ever expected,” says Darryl Jenkins, a long-time industry consultant. “The old days are long gone and it’s going to get quite a bit a worse.”
With jet fuel now hitting $145 a barrel, an almost 80 percent increase over prices last year and a whopping 280 percent higher than prices in 2003, the airlines are facing an unprecedented financial crunch. For the first quarter of this year, all the legacy carriers and most of the low-cost carriers (except Southwest) reported net income losses ranging from $8 million to $6.4 billion.
That means leisure travelers face higher fares, more fees, fewer flights, and little hope for quality improvements. Travelers won’t be totally powerless however, and I’ll share some tips on what you can do to minimize or avoid some of the negative impacts.
Paying the gas bill
April 22, Delta’s CEO Richard Anderson said airfare needs to go up by 15 to 20 percent in order for the airlines to break even on fuel costs. Analysts say this is a bold statement, but most agree that big fare hikes are inevitable. “[Anderson] is right that airfares must go up, and go up by double digit percentages to cover the cost of fuel,” says Henry Harteveldt, principal analyst at Forrester Research. “The era of cheap air travel is gone.”
Rather than increase all fares, the airlines will likely achieve a 15 to 20 percent average increase by eliminating some of their lowest level fares altogether and placing a heavier burden on upper fare levels. (Airfare 101: In economy class, airlines sell essentially the same product at different fare levels. Generally, the lowest-cost fare levels go to passengers who either book early or snag a sale fare when the airlines want to fill empty seats.)
“The airlines will have to increase prices, but they can’t raise everybody’s fares 20 percent because many people will choose not to fly,” says Bob McAdoo, a senior research analyst at Avondale Partners and a former airline CEO. “I don’t think we’ll see an end to deeply discounted seats, but the number available will drop, and some of the lowest-paying travelers are going to get left behind.”
“The airlines will try to put the burden of increases on business travelers because leisure travelers aren’t willing to pay much more than they already are,” says Ed Perkins, a consumer advocate and SmarterTravel.com columnist. “So, we’re seeing an increase in prices in the higher fare buckets and the imposition of old restrictions on the lower fare buckets, such as the Saturday-night-stay requirement and advance-purchase rules.”
The good news is some experts think prices will be kept in check on routes served by low-cost carriers like Southwest.
Capacity cutting—trimming the frequency of flights on unprofitable routes, swapping larger planes for smaller planes with fewer seats, and cutting out routes altogether—is an easy way for the airlines to get the supply and demand ratio to move in their favor, so it’s something travelers should expect. A JP Morgan report published on April 15 suggests “the industry needs to downsize anywhere from 15 to 20 percent in order to re-calibrate for profitability at current fuel prices.”
“Probably about 90 to 95 percent of the domestic routes airlines fly are not profitable,” says Jenkins. “So I expect a massive amount of domestic service will be cut.”
Up first on the cutting block: lightly traveled domestic routes with little competition. But, even routes to popular vacation destinations such as Hawaii and Las Vegas could be affected. Those destinations have not been profitable for most airlines because they don’t attract enough business travelers while many leisure travelers visiting those places buy their tickets with stored-up frequent flyer miles, not cash.
Lower your expectations
While travelers bemoan added fees for services that used to be free and complain about the increasing discomfort of flying, some industry insiders say that most flyers have had it too good for too many years. “It’s reality check time,” says Jenkins. “For the years the industry has been subsidizing the passenger. The low prices some passengers paid for their seats did not cover the true cost of flying.” With the advent of low-cost carriers, say some experts, the legacy airlines were compelled to lower prices in order to be competitive on certain routes. Customers greatly benefited from this competition, but offering discounted fares and no-charge services (which their low-cost competitors typically charged for or didn’t offer at all) has not proven sustainable for the legacy carriers. In general, the legacy carriers also have higher operating costs than the low-cost carriers because of their more extensive networks, and therefore require more revenue.
More fees for services that used to be free
Besides fare increases and capacity cuts, the airlines are looking to make up some of their losses with new fees for services that used to be free. “The nickel and diming is not going away,” says Perkins. “The airlines will look to charge you for whatever they can.” Smarter Travel has been tracking airline fees, and new ones have been popping up nearly every day for the past month. On Tuesday, April 29, for example, American Airlines made charging for a second checked bag the industry standard when it became the sixth and final legacy carrier to add the $25 fee.
While it hasn’t happened in the U.S. yet, customer service may be the next thing the airlines try to use to generate revenue. On April 2, Air Canada unveiled a plan that appears to do just that. For a cost of $25 to $35, the airline will provide passengers with a travel assistance program that entitles them to dedicated phone service, hotel and meal compensation, and other benefits in the event of a flight disruption. The airline has come under fire for the move, but an airline spokesman defended the fee, calling it an “innovative solution” to challenges posed by the current travel market. No U.S. airline has yet to follow.
Little hope for improved comfort
“Over the years the airlines have come to realize that inside product is less important than where they fly and when they fly,” says Jenkins. “When people book a ticket, they think they’re paying for an airline seat, but they’re really paying for a destination. Passengers will and have been seeing a big change in the seat they sit in. Unfortunately, the crowded airplane will be with us until were all comfortably dead.”
Despite all the doom and gloom, at least one airline expert believes the quality of airline travel will have to go up. “When passengers are paying $29 fares they’re more willing to excuse bad service, but with higher fares and more fees passengers are going to expect better customer service, clean planes, and if not comfortable seats, at least less uncomfortable seats,” says Harteveldt. “I don’t think it is unrealistic, for example, to expect your bags to show up if you paid extra baggage fees.”
Extended forecast: More mergers on the horizon
Bob Mann, an airline industry consultant with experience working on mergers, says he suspects that in coming years there’s a good chance the legacy carriers will have merged into three mega airlines. “Once there are only three big carriers it will be a lot easier for them all to toe the line when they need to increase prices and make other sweeping changes,” says Mann. “If that happens, air travel will be more expensive for sure, if only due to the need to recover higher fuel costs. Your carrier of choice may elect to leave you by the side of the road because they may no longer be interested in carrying the lowest fare passengers.”
How to keep your air travel costs under control
Given the magnitude of the problems facing the airline industry, it’s easy for the average flyer to feel helpless. Yet, all the experts I spoke with think you’ll still be able to find reasonably priced fares. You’ll just have to be more creative, flexible, and forward-thinking than ever to get them. Here are some tips:
- Book now for summer travel, and as soon as possible for the rest for the year. “The earlier you can book the better,” says Jenkins. “He who hesitates will be lost on this one.” It will likely pay off to lock in your travel plans now before prices increase further. “Once somebody has sold you a ticket they can’t raise the price,” says McAdoo.
- Be flexible about when you fly and look for savings on off-peak travel days and off-peak hours. “The airlines study consumer purchasing habits, so they know when people like to travel and they will charge you a premium for those time slots,” says Rick Seaney, CEO of FareCompare, a consumer airline ticket research website. He advises travelers to go against the flow and seek out the less popular times to fly: “Rather than traveling on a Friday or a Saturday when everybody wants to fly, go on a Tuesday or Wednesday instead. You can save $100 to $200 on certain trips that way.”
- Travel in the low or shoulder season. The same off-peak rules that apply to travel days and times also apply to destination seasonality. Fly to a place when fewer people are going—say, Europe in the winter or the Caribbean during the summer—and you’ll generally pay less than flying when a destination is in season. Smarter Travel’s Travel Guides section features detailed “When to Go” information on hundreds of destinations. We also publish a quarterly top five off-peak destinations feature, highlighting some of the best off-peak deals each season.
- Use online tools to compare and track airfare prices. “Right now we have more price transparency in the industry than ever before and the online fare tools out there can make it easier to find the best price,” says Mann. Smarter Travel Media, Smarter Travel’s parent corporation, runs two other helpful airfare sites: BookingBuddy.com, a tool that allows you to compare prices on multiple websites and search engines at one time, and Airfarewatchdog.com, a site that sends subscribers email alerts detailing the best deals from designated cities. Farecast is another useful online tool that uses historical fare data to predict whether prices on a certain route will go up or down. Also try Yapta, a tool that tracks prices on individual flight itineraries tagged by users and then sends email alerts when prices go up or down.
- Consider secondary airports. “Check prices at alternative airports,” says McAdoo. “For example, if you’re going to Orlando, check the prices for flights to Orlando and Tampa. You may find it’s cheaper to fly to an airport an hour or so away and rent a car than it is to fly directly to your destination.”
- Be an informed and prepared flyer: Finding an affordable fare is only part of the savings battle. You also need to figure out what extra fees to expect and take some precautions to avoid mistakes at the airport that could cost you time and money. Go to your airline’s website and find out what fees they charge for different services. Depending on what you find, you may want to pack a lunch to avoid paying for food on the plane, pull a few extra outfits out of your bag to keep it under weight limits, or reconsider bringing Fluffy along now that it costs $100 just to stow him under your seat.
Essentially, most of the past advice given by airfare experts, including Smarter Travel editors, applies now more than ever, since travelers will be competing for fewer low-priced seats. As the situation progresses, we’ll continue to look for ways to keep air travel cost under control. Check back with Smarter Travel in the coming weeks for updated tips and insights.
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(Editor’s Note: SmarterTravel.com is published by Smarter Travel Media LLC, a member of the TripAdvisor Media Network, which also owns Airfarewatchdog.com.)
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