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Tue, Nov 11, 2008

So... What's The Deal With Continued High Fares?

May Counters Airlines Are Still Hurting, Despite Recent Windfalls

On the heels of its story about so-called "dropped" fuel surcharges, USA Today also took the airline industry to task for adding still-more confusing fees when fuel prices were rising, then failing to share falling fuel costs with customers.

The op-ed piece notes a nationwide survey by AAA finds regular unleaded auto fuel averaging $2.30 per gallon this week. Jet fuel has followed suit, at $2.16 cents, down 45 percent from its peak in July.

USA Today says fees for a traveller's first checked bag should be dropped in response, but notes Delta just announced it will become the sixth major carrier to do so, effective December 5.

The paper states, "We're sympathetic to the industry's financial plight after a year of soaring fuel costs, which have created steep losses. And customers' obsession with finding the lowest base fares on the Internet makes it hard for carriers to cover costs on competitive routes. But it looks as though some airlines have become addicted to the money the surcharges and add-ons bring in, and they're not about to let go.

"If airlines expect customers to put up with surcharges and pesky add-on fees blamed on high fuel costs, both should bear a strong relationship to fuel prices. That's no longer the case. Passengers deserve an explanation, or better yet, a break."

In his reply to the USA Today editorial, James May (right), President and CEO of the Air Transport Association, counters that airlines, "...have not come close to earning back what they lost, and their fares have not been able to keep up with the overall rate of inflation. Unfortunately, US airlines have been profitable only in two years since 2002.

 "Even if prices stabilize and the industry is marginally profitable in 2009, it will take much more than a year or two of profitability to recover from prolonged losses and to restore badly needed financial stability."

As for the ala carte fees which have become the industry norm in the past year, May echoes the findings of Robert Buckman, Director of Airline Distribution Strategy for Amadeus IT Group.

In an ANN Feature Aero-Cast last month, Buckman told ANN while the media has decried the separation of optional services into ala carte fees, consumers find it advantageous. May agrees, saying customers have shared with the airlines that many prefer a menu of services they can pay for separately in return for lower fares.

May adds that airline tickets sold months in advance must allow for unpredictable costs, and permit the airlines to make necessary future investments.

"Ultimately, it is competition in this marketplace that will best determine how airlines price their products."

FMI: www.airlines.org, www.usatoday.com

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