Would airlines still be profitable if you stripped away fees?

Yes, but hardly.

The nine largest US airlines will collectively report $2.4 billion in quarterly profits on $33.3 billion in revenues next week, according to Robert Herbst of the site AirlineFinancials.com.

By my calculations, those airlines will have collected $2.25 billion in ancillary fees during the same period. If those fees are all profit (and there’s an argument to be made that a lot of it is) then the industry would have made only about $150 million in the third quarter.

My estimate could be a tad high, actually. A recently-released survey from Amadeus and IdeaWorks estimated worldwide ancillary revenue at $22.6 billion in 2010, with $6.7 billion in fees collected by the major American airlines.

It’s still a lot. And it still begs the question: What if airlines had to quote an inclusive fare, because of new regulations?

Would passengers suffer from sticker shock and stop spending on tickets? Would the airlines start losing money again?

Now you know why airlines are lobbying so hard against regulation: It threatens their profitability.

  • noah

    “yes, but barely” is almost certainly the wrong answer. Eliminate a la carte fees and base fares go up to compensate.

  • http://oussamastake.blogspot.com/ Oussama

    I understand profit is profit whichever way you look at it, but this is all made on ancillary non core revenues. This indicates that the Majors have not gotten their core business processes right yet.
    If ancillary fees continue escalating the regional feeders will lose big time as people start driving or taking the bus for trips less than 500 miles

  • Kevin

    Noah has hit the nail on the head.

    The extra fees were introduced to help raise revenue in a time of crisis, but now that revenue is up, they will not go away so now they are just fleece.

    If you strip the fees, the base fare raises a bit making up for most of the loss of the stripped fair.

    Get read of them, they are really hidden costs, not extra fees, therefore dishonest.

  • Alan

    Let’s rephrase the question. If airlines substituted higher fares for all the fees, what percentage increase would that actually be?

  • mark

    i dont mind the fees for luggage as I have learned to to do only carry on Just got back from 2 weeks in Europe and both me and my partner did just carry on. I will say the carry on fee the Spirit is doing caused me to stop the 9.00 club membership

  • Mary Graham

    Look, it’s very simple, we just want to be treated well and not feel as thought we’re worthless cattle. We spend our hard earned money for a service and are treated awfully. Come on, PAY for leg room???? Ridicules! So we either act like sheep and take it or STOP giving these businesses our, well, business!

  • Plat flyer

    Everything is out of whack because airlines are squeezing all they can out of us while trying to keep the base fare low. What needs to happen is that fares need to rise and be all inclusive of service required by passengers. That should probably not include a baggage charge, since not all passengers check bags. But it should include things like legroom and quality seats and service, something all passengers should receive. If I wanted a Greyhound experience I’d take the bus, I don’t want it on a plane. But I also should be paying more than $300 for a transcontinental flight…that’s how much I paid in the ’80s for the same flight.

  • Ric Crouch

    This is a specious argument. Why not just say, “would airlines still be profitable if you reduced their fares?” Whether listed as “fare” or “fee”, the result is the same.

    People still end up VOLUNTARILY paying the final price. All talk of “fleece” is ridiculous. Customers who don’t like the “fees” are free to go to another airline–usually to find that the bottom line price there is…. higher.

  • David Z

    @Ric Crouch

    +1

    Besides, airlines surely are willing to offer the service people demand, though they probably “can’t” afford it at the prices they offer. Thus, are people willing to pay extra for that?

  • Carver

    @Ric Couch

    #2

    The entire premise is specious. We want airline service at cheap rates (myself included). However, all inclusive rates lead to gross inefficiencies as it leaves getting a better seat to the luck of the draw, and prevents people from avoiding charges by changing behavior, e.g. carry-on instead of checking bags, bring lunch rather than eating nasty airplane food, etc.

    Better seats, whether more legroom, premium placement, or even First Class, are of higher value and therefore should always cost more. The currency might be cash or frequent flier status, it doesn’t really matter.

    But the basic rule of economics is that items should always go to the person who values it most. (Which is not necessarily the richest person).

    My brother in law is 5’4″. He doesn’t need extra legroom. I”m 6’1″. I’d be happy to pay extra money for more legroom.

  • kenish

    The airlines have tried many experiments that have failed with the flying consumer. Everyone whinges about poor service, cramped seats, surly service, etc. But consumers have voted with their wallets- and it comes down to rock-bottom fares. The airlines have changed their pricing model to meet customer expecations of price and not value.

    Happily, I’m starting to notice a trend towards “bundled upsells” where you get several benefits for a usually modest extra cost.

    To the original question- if fees are done away with, base fares will increase on some routes, while the supply (number of flights) will decrease on price-sensitive routes.