In the run-up to what is expected to be a record summer travel season, airlines are warning the federal government to take a hands-off approach to regulating baggage fees and other add-on costs in the aviation industry.
The House earlier this year passed legislation to reauthorize federal funding for the Federal Aviation Administration for the next five years. The Senate’s version of the bill includes a provision from Sens. Ed Markey, D-Mass., Richard Blumenthal, D-Conn., and Roger Wicker, R-Miss., that would effectively set an industry standard for fees related to baggage and ticket changes.
Airlines for America, a top trade group representing companies like Southwest Airlines, American Airlines and United Airlines, on Wednesday said the measure amounts to an “existential threat” for the industry.
“We definitely see this as the camel’s nose under the tent to turning back 40 years of the success that we’ve seen…and going back to a time when the governments in charge of setting pricing,” senior vice president Sharon Pinkerton told reporters.
Pinkerton related the decoupling of baggage fees from the overall cost of the ticket to going to a Major League Baseball game, where customers are charged for ticket costs related to the quality of the seat, as well as any additional add-on costs once in the stadium.
“The type of unbundling that we’ve seen in the airline industry has been a business practice that many others have cleared the way before us,” she said.
Pinkerton’s comments came amid a strong earnings period for most major U.S. airlines. Low-cost carrier Spirit Airlines, for example, reported a 19.4 percent increase in total revenue for the latest quarter, while Delta Airlines posted a 10 percent growth.
The rising cost of fuel, however, continues to weigh on the industry. The average cost of jet fuel topped $2.03 in the first period of the year, A4A’s vice president and chief economist John Heimlich said.
“It’s pressuring airline profitability,” he told reporters.
When asked whether the rising cost of fuel would drive up ticket costs – something the airlines have alluded to – Heimlich said total revenues have to keep up with expenses “whether they are fuel or anything else.”
“No doubt in the medium-to-long-term there is a relationship, but we’re in a marketplace where low-cost and ultra low-cost carriers are growing the fastest,” he said. “That’s an environment where it’s challenging to make up the differences quickly.”
The main criteria for consumers remains affordability of air travel and any major increase in ticket prices would likely result in some backlash. Carriers have looked to other aspects of the business to cut costs to avoid price hikes, but experts and industry executives say it is inevitable if fuel costs remain high.
The A4A estimated that a record 246 million passengers would travel this summer, a 3.7 percent increase over last year.
