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Oil Prices Go Down but Fees Do Not

Oil prices have come down dramatically from their highs, but despite lower costs, the airlines don't appear to be in any hurry to revert to their old ways. In fact, many seem to be quite happy with the new way of the world . . . a la carte pricing. US Airways has been the most aggressive, and the airline remains the most clear in its message. The new revenue model is here to stay. That's going to be a shock for some travelers who thought this was a temporary situation, partly because that's how the airlines continue to sell it.

See, there's nothing wrong with an a la carte model. And as US Airways has found, it generally means that passengers only pay for what they want. That should theoretically mean that the passenger who wants bare bones service will end up paying less while others will pay more. The net gain is large as ancillary revenue continues to go up at nearly all airlines. But passengers aren't happy right now. Oil prices are down, so why aren't fares and fees? The airlines spent so much time blaming fuel for every change they made, that they've now backed themselves into a corner.

Take a look at US Airways' June announcement, for example. At the time, the airline rolled out a host of changes including the oft-discussed $2 fee for a soda or bottle of water. Why did they do it? In the press release, President Scott Kirby noted:

While consumers are paying roughly the same for domestic airfares as they were in 2000, the same cannot be said for airlines' operating costs, especially fuel, which now costs us $299 per customer carried on average. We simply must adapt to the current environment and transform our business by generating new sources of revenue and adding fees to better offset our costs. The 'pay for what you choose and use' model ensures that only the customers that want such services bear those costs. While new and different, this model ensures that competitive and affordable travel remains intact across our system.
It seems very clear that this new model is solely due to the rising cost of fuel, right? Well of course that's how US Airways wants to position it. It's easier to get the public to accept it, and to be honest, I think that's probably exactly what they were thinking when they implemented it. But now, they find they love the model. It reduces complexity and waste, and it increases revenue. So the message is changing.

As they continue to push it further with more seat assignments being held back for an extra fee and a charge for inflatable pillows and blankets, the public is left wondering "why" now that fuel prices are going down. There's no reason US Airways shouldn't go to this model at all, but it's going to take awhile for passengers to understand that it's here to stay. That will cause short term tension between the airline and its customers.

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