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Airlines' new blue yonder: extras, for a fee

NEW YORK — Airlines are introducing a new bevy of fees, but this time passengers might actually like them.

Unlike the first generation of charges that dinged fliers for once-free services like checking a bag, these new fees promise a taste of the good life, or at least a more civil flight.

Extra legroom, early boarding and access to quiet lounges were just the beginning. Airlines are now renting Apple iPads preloaded with movies, selling hot first-class meals in coach and letting passengers pay to have an empty seat next to them. Once landed, they can skip baggage claim, having their luggage delivered.

In the near future, airlines plan to go one step further, using massive amounts of personal data to customize new offers for fliers.

"We've moved from takeaways to enhancements," says John F. Thomas of L.E.K. Consulting. "It's all about personalizing the travel experience."

Carriers have struggled to raise fares enough to cover costs. Fees bring in more than $15 billion a year and are the reason airlines are profitable. But the amount of money coming in from older charges like baggage and reservation change fees has tapered off. Revenue from bag fees in April, May and June fell 7 percent compared to the same period last year, according to figures released by the government Monday.

So now the airlines are selling new extras and copying marketing methods honed by retailers.

Technological upgrades allow airlines to sell products directly to passengers at booking, in followup emails as trips approach, at check-in and on mobile phones minutes before boarding. Delta Air Lines recently gave its flight attendants wireless devices, allowing them to sell passengers last-second upgrades to seats with more legroom.

"We have massive amounts of data," says Delta CEO Richard Anderson. "We know who you are. We know what your history has been on the airline. We can customize our offerings."

Most passengers select flights based on the lowest base fare. The online travel industry plays up that price sensitivity with sites named CheapOair.com, CheapTickets.com and InsanelyCheapFlights.com.

When airlines try to raise fares, they are met with resistance.

In the past three years, airlines have tried to hike fares 48 times, according to FareCompare.com. During 29 of those attempts, bookings fell enough that airlines abandoned the increase.

Most fares today don't cover the cost of flying. While the average domestic round-trip base fare has climbed 3 percent over the past decade to $361.95, when adjusted for inflation, the price of jet fuel has nearly tripled.

Without the fees, experts say fares would be 15 percent higher.

Southwest has held off charging for most checked bags. But it sells plenty of other add-ons.

Recently, it introduced a way for people at the back of the boarding line on some flights to cut to the front for $40. It's not a blockbuster seller — one person pays up every two flights — but with 3,600 daily flights, that nets $70,000 in extra daily revenue, or $25 million a year.

Airlines now alter fees based on demand. United Airlines used to sell its Economy Plus extra legroom seats for one price per route. Today, aisle seats cost more than middle seats; prices are higher on popular flights.

That change in thinking has helped United increase fee revenue 13 percent this year.

Airlines' new blue yonder: extras, for a fee 09/30/13 [Last modified: Monday, September 30, 2013 10:48pm]
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