I am flying United Airlines from Los Angeles to Honolulu. United is charging me an additional $98 to sit in "economy plus." So rather than $364 for my flight, with taxes, luggage fees and this "economy plus," I'm paying $498. Are all airlines squeezing customers like this?
Yes. Welcome to a brave new world of aviation economics that has spawned new pricing structures that airlines think will help them battle the dual Godzillas: fuel prices and economic downturn.
In a discussion last fall about fees with Richard Gritta, professor of finance and transportation at the University of Portland, Ore., he asked me, with a hint of laughter in his voice, "What's next? Paying for the bathroom?" I'm not sure whether he's omniscient or just acutely aware of airline economics, but you will recall that in February, Michael O'Leary, chief executive of Ryanair, the European budget airline, said the company was considering charging 1 pound to use the loo. O'Leary has a history of making outrageous remarks, so we will take his suggestion with a grain of salt.
Airlines, until recently, played the yield management game - that is, charging based on what the market would bear. But now they have introduced what economics professor George Hoffer of Virginia Commonwealth University in Richmond calls "marginal cost of service pricing."
"Unless you try to identify marginal costs, you wind up with this 'cross-subsidization' where people who don't impose a lot of cost on the airline have to subsidize those who do," said Hoffer, who specializes in transportation issues. "Baggage is the best example." If you have no baggage, you're essentially paying for another passenger's luggage.
But airlines get in trouble with the public when they carry fees to the extreme. Hoffer objects to the fees they charge for re-booking a ticket and for making passengers pay for drinks, pillows and blankets. Charging for extra legroom, in his view, falls into a permissible category, because airlines are giving up revenue to give you more legroom (more space, fewer seats, fewer to sell). But he draws the line at airlines that "intimidate you into a higher price, almost like a come-on."
That's how I felt when I recently booked a ticket on Midwest Airlines. It was a good fare, but there were no plain old seats left. If I wanted, I could pay an extra $50 each way to guarantee my seat. Otherwise, I'd have to take the luck of the draw the day of the flight, which left me wondering whether the flight was overbooked. Bottom line: I didn't spend the money for the guaranteed seat. I may kick myself later.
