Can’t make heads or tails of what’s happening in the airline industry today?
Peter sat down with Joe Brancatelli, founder of of JoeSentMe.com and columnist for Portfolio.com, to talk about what airlines are doing to survive, and the long, hot, expensive summer ahead for Europe-bound travelers.
Peter Greenberg: The airlines are charging fees to see if they can get away with it, and so far they have.
Joe Brancatelli: If you match up the $11 billion in ancillary revenue that the airlines have made against the amount of revenue they’ve lost by charging those fees, they’re still behind the eight ball. That’s why Southwest and JetBlue and the airlines that don’t charge these kind of fees are actually growing in this market, while the ones who are charging it are losing ground.
PG: Well JetBlue does charge to check the second bag, Southwest doesn’t.
JB: Southwest gives you two bags and JetBlue gives you one. I would make the case that most people, in most cases, can get away with one bag. I do find that fair in our economy. As opposed to our good friend Ben Baldanza who runs Spirit whose latest explanation for the $45 carry-on fee was, “Well I have customers in the Dominican Republic who make $2,500 a year, and it’s not fair to charge them a higher fare because they may not want to carry on a bag.” I’m thinking, I’d like to go through the aisles and see how many Dominicans who earn $2,500 a year are flying on Spirit Airlines.
PG: Spirit Airlines should change their entire advertising motto to: “We’re not happy until you’re not happy.”
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JB: That’s a great joke, but the bigger problem is it makes a mockery out of the Department of Transportation’s fair advertising rule which says, you have to advertise the total fee for an airfare. We now don’t know what an airfare is. It’s not just that they’re charging for carry-ons; they’ve got to new planes that have just 28 inches of seat pitch. Compare that to JetBlue, which is at 34 inches, and it’s clear there is no such thing as a fair fare anymore.
PG: It gets worse because those are seats that do not recline at all.
JB: My guess is, and this is a total guess on my part, is that we’ll never see this carry-on fee. Our good friend Ben—who, by the way, almost destroyed US Airways before he went to Spirit with this kind of thinking—got tremendous publicity from it. It’s based on the theory that any time you mention a name on a television program, it is good publicity. He goes on every week it seems, and gets battered on some cable news station. I think he’ll give the “we heard the markets” speech and then won’t do it. Meanwhile, his bookings have gone up because there are some people who will just put up with anything.
PG: You know what? I want to round up all those people and send them on a one-way ticket somewhere else. Let’s come up with an airline just for stupid people, and only sell one-way tickets. what do you think?
JB: I think we actually have it, and it’s called legacy carriers. But you’re right it’s a good way to go. I do think the market is talking, and that’s important. Southwest Airlines gained an entire point of market last year. In a glacial industry like the airline business, to gain one point of the market in one year is an astounding number. People are paying attention.
PG: There’s a story about that because when Gary Kelly, who is the chairman of Southwest, made the announcement that was not going to charge for checked bags, his own shareholders, his own board of directors, thought he was nuts. They said he would be leaving $700-$800 million of revenue on the table. But if he could move that 1 percent market share, it more than made up for it. Here’s the part that people don’t realize: If you compare Southwest fares in many, many markets where they compete with legacy carriers, Southwest is no longer the discount carrier. And yet they’ve got such great passenger goodwill. People don’t feel like they’re being nickel and dimed. There’s a lesson there.
More of Peter’s take on the latest in the industry here: Peter’s Travel Trends Keynote Dissects Latest Tourism Marketing Schemes.
JB: When I went to Rome in February, I was going to try to give the benefit of the doubt to an airline I do like: OpenSkies, the boutique carrier of British Airways. They only fly to Paris, and I was perfectly willing to fly them, and connect from Paris to Rome. But they only fly to Orly airport. The only airline that flies from Orly to Rome is an airline called Vueling. You know it, I know it, and maybe three other people in the country know it. But I don’t know enough about Vueling to know what their policies are. So, I went to their Web site. I literally could not understand what I was getting for my fare dollar. I didn’t know if I’d have to pay for an aisle seat, whether luggage was included, whether I’d have to pay for a position in line to wait to board the plane. So at that point, I gave up and booked Continental on a non-stop flight. And people do that, Peter. There is always going to be somebody to fly Spirit, but the average customer is clearly talking with their wallet. The airlines that hear it are making money like Southwest and JetBlue, and the ones that don’t are merging because they can’t survive in the marketplace.
PG: Speaking of travel to Europe, how about those summer airfares? Airfare to Dublin is up 32 percent; to Rome it’s up 38 percent; London is up 42 percent over last year. That’s serious.
JB: It is serious. Part of the issue is that it’s coming off of an impossibly low base. 2009 was one of the lowest airfare years in history to Europe. That was right when the economy was at its worst. A lot of people had been whacked. Certainly in coach the numbers are higher: You’re looking at four digits in coach in many cases. There are some deals out there, but the problem is a lot of the capacity has gone away. The ash cloud has also had an impact. There are a lot of people still being accommodated from what went on in April, so there just aren’t a lot of seats. The airlines are hoping for an opportunity to make some money on the people who just don’t get the message. I say, go somewhere else. There are plenty of places in the world. Go to Florida right now, go to Hawaii, go to the Caribbean. Europe has been around for a long time and it will be there next year.
By Peter Greenberg for Peter Greenberg Worldwide Radio.
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